3 reasons why you need to ignore recent market falls

The S&P/ASX 200 has fallen for 4 consecutive days but this is not a long-term trend

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published January 7, 2016 11:36 am AEDT

In the past five business days, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has fallen four times and looks headed for another disappointing day today, with the market down 0.1% in early trading.

And already we are seeing some market commentators predicting the theme will continue for the rest of the 2016 year.

But here's why you need to totally ignore the market's movements over the past week.

A week does not a trend make

Just because the market falls for four of the first few days of the new year, that doesn't mean much, and the market could soar higher from here or crash much lower in 12 months' time. No one knows where the market will finish the year.

Big companies dominate

The Australian market is dominated by the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), Telstra Corporation Ltd (ASX: TLS), BHP Billiton Limited (ASX: BHP), CSL Limited (ASX: CSL), Wesfarmers Ltd (ASX: WES), Woolworths Limited (ASX: WOW) and Macquarie Group Ltd (ASX: MQG).

Those 10 large caps represent just over half the market cap of the entire ASX 200 index, and factors that affect them will play a large part in where the index goes. In particular, the big four represent 30% of the index and are now our 4 largest companies, so whether the index falls or rises depends much upon the outlook for the banks and their earnings in the year ahead.

No individual company tracks the index performance

If you are investing in individual companies, you shouldn't be all that concerned with what the index is doing. In 2015, the S&P/ASX 200 posted a fall of 1.9% according to Google Finance, while shareholders in Blackmores Limited (ASX: BKL) saw gains of 538%. Do you think they cared what the index was doing?

Be more concerned about the performance of your individual shares than the overall market.

Foolish takeaway

Concentrate on investing in high-quality companies that can grow earnings over time, invest regularly (including your dividend payments) and avoid the potential ticking bombs like Slater & Gordon Limited (ASX: SGH) and real bombs like Dick Smith Holdings Ltd (ASX: DSH).

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