We have seen historically that specific factors can give birth to a stock market boom. Three of the characteristics that contributed to the 1990s boom included the spread of free enterprise, an economically productive generation, and technological improvements

It pays to keep in mind that the stock market anticipates changes, and no stock trend lasts forever. Stocks can go on lengthy downturns due to business and economic problems. However, the market typically starts to go back up long before the problems get solved.

Trends can lead to a stock market boom or collapse. It’s important to know more about the contributing factors.

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Three special factors that set off the 1990s stock market boom

The three factors were the worldwide spread of the free enterprise system; the productivity gains from computing and communications technology; and the maturing of the baby boomers. Here’s more on these three key factors:

• The spread of economic liberty around the world. For instance, we saw this following the 1991 downfall of the old Soviet Union. After the Soviet empire came apart and Soviet support dried up, many developing countries began to look to the U.S. and other democracies as a guide.
• The “right generation.” Baby boomers were entering the most economically productive time of their lives. The boomers were making, spending, saving and investing more money than ever before.
• A huge leap forward in productivity, thanks to vast improvements in computer and communications technology. Productivity gains are great fuel for economic growth and rising corporate profits.

It appeared that this stock market boom was likely to last longer and carry stock prices much higher than most investors expected. In fact, the 1990s stock market boom did turn out to be extraordinarily strong and long-lasting.

After the 1990s stock market boom ended, the move toward free enterprise stalled as well. We entered a lengthy period when the markets mainly went sideways, within a wide range. Then, from the fall of 2007 through to the first quarter of 2009, the world economy went into a recession and the stock market went into a deep swoon. It took until the first quarter of 2013 for the market to recover to its 2007 peak.

Stock market boom or stock market bust? Don’t try and predict the future. Instead build a portfolio of stocks using our Successful Investor approach.

No one can consistently predict the market’s future. But basing your investment outlook on a single development of limited impact is going to hurt your investment results, to say the least.

You’ll wind up selling at a low, or buying near a temporary peak. Instead, it’s better to concentrate on big idea(s).

Aim for investment quality and diversification in your investment decisions. At any given time, lots of prosperous, well-established companies—the best blue chip stocks included— are out of investor fashion. Some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight.

Stock market boom or bust: Four key points to our Successful Investor approach for the long-term gains

Investors need to stay out of companies in which they have doubts of any sort about the integrity of insiders.

They also need to recognize the special risks of investing in fashionable or excessively popular minefields, such as Internet stocks in the late 1990s, or income trusts in the 2000s, or today’s social media stars.

In fact, key elements of our Successful Investor approach are based on these four points:

1. Don’t depend on luck to make money for you or to prevent losses.
2. Be skeptical of the claims and recommendations of brokers, promoters or anybody else with a vested interest in a particular investment.
3. Don’t do anything stupid.
4. Win by not losing.

How to profit in any stock market cycle and avoid worrying about stock market booms and busts in the process

Market downturns are inevitable and markets will always swing back up again. All in all, the best way to insulate yourself from market cycles is to invest in quality blue chip companies using our Successful Investor philosophy.

Even during tough economic times, blue chip companies still pay dividends. These tough stock market cycles are also excellent times to purchase solid blue chip companies.

Bonus Tip:  To profit consistently, take a broad view of the market and economy

There’s trouble with zeroing in on any single facet of investing—a trading or investing technique, a particular industry, a single commodity or whatever. With a narrow view, you can get lucky and make a handful of brilliant trades. But to profit consistently in a long investing career, much less make any serious money, you have to take a broad view of the market and economy, you have to learn how to single out stocks that will go up and stay up, and you have to learn to diversify. Many investors are well past age 35 when they make that essential discovery.

To be a Successful Investor, you need to maintain a balanced attitude toward investment news. You need to stay alert for changes in the investment outlook, of course. But you also need to avoid reading too much into any single news item.

Most people can absorb anywhere from one to a handful of news items at a time. That’s all it takes to create an aha moment. But the stock market as a whole continually absorbs, processes and re-processes “the news background”—all the information that’s available. That’s what counts.

A single news item can have a big but temporary effect on a stock. However, the totality of all relevant information is what determines the long-term performance of a stock or the market. Most successful investors will tell you that they made most if not all their profits by taking advantage of long-term market moves, some of which lasted decades, or are ongoing.

How much longer will the current bull market last?