You hear it all the time, and it’s frequently discussed: ‘the market’, ‘the stock market’, or more specifically, ‘the ASX’. When you hear statements like “the market was up 2% on Wednesday” or “the ASX was down 0.2% yesterday,” it’s a reflection of the overall movement of companies listed on the Australian Securities Exchange. These movements are typically measured by indices, which provide a snapshot of the total value change of a basket of companies.
The most commonly cited indices include:
- S&P/ASX 200 Index (ASX: XJO): This index tracks the performance of the 200 largest companies listed on the ASX.
- S&P/ASX All Ordinaries Index (ASX: XAO): Often referred to as the ‘All Ords’, this index encompasses approximately the 500 largest companies.
- Other Indices: You’ll also encounter quotes for the S&P/ASX 20 Index (XTL), S&P/ASX 50 Index (ASX: XFL), S&P/ASX 300 Index (ASX: XKO), and the ‘Small Ordinaries’, among others.
These indices are incredibly useful as they offer a broad overview of market performance and serve as a reasonable indicator of wealth changes for investors. While each index covers a slightly different segment of the market, they all aim to represent the collective performance of listed companies. It’s worth noting that some analysts prefer the All Ordinaries due to its broader representation, including more companies than the ASX 200, making it arguably more comprehensive.
The Illusion of Averages: Unpacking Market Performance
However, relying solely on averages and aggregate figures can mask significant underlying detail and divergence within the market. For instance, over the past 12 months, the difference between the best-performing ASX sector and the worst-performing one has been a staggering 72 percentage points. This isn’t a typo. In a single year, such a massive disparity can occur.
To provide some context, the All Ordinaries index has seen a gain of 6.6% over the last twelve months, while the ASX 200 has gained 7.0%. In stark contrast, the top-performing sector has surged by 39.1%, while the bottom performer has plummeted by 33.6%.
The disparity doesn’t stop there. The gap between the second-best and second-worst performing sectors is a remarkable 62 percentage points. Out of the 11 sectors on the ASX, four have experienced movements exceeding 30% – two in positive territory and two in negative. Meanwhile, the broader market average has hovered between gains of 6.5% and 7%. The sector closest to this average saw a modest gain of 7.3%. Every other sector has deviated by more than 6 percentage points from the market average, with the next closest performers showing gains of 13.4% and 0.7%. This highlights that, compared to the average, only one out of eleven sectors has remained remotely close to the overall market performance.
This situation is not a cause for complaint or celebration; it’s simply the nature of market dynamics. It serves as a useful reminder, akin to the economist’s joke about being on average comfortable despite having one hand in the oven and the other in the freezer.
Two Sides of the Market Coin: Index Investing vs. Stock Picking
This divergence in sector performance offers two very different perspectives on investing:
- For Index Investors: If your strategy involves index investing, this wide spread is precisely why it can be appealing. While some sectors might be down 30% and others up 30%, your diversified index fund aims to capture the broader market’s 6.5% or 7% gain, largely indifferent to the individual fortunes of specific sectors. Dividends further enhance this steady return.
- For Stock Pickers: Conversely, for those who actively select individual stocks, this wide disparity is a crucial reminder to avoid getting swept up in market euphoria or despair. It underscores the importance of thorough research and a long-term perspective.
Unpacking the Top and Bottom Performers
Let’s delve into the sectors that have driven these extreme results:
- Top Performing Sectors: Energy (driven by oil prices) and Resources have been the standout performers over the last 12 months.
- Worst Performing Sectors: Information Technology (IT) and Healthcare have lagged significantly.
- Average Performer: Consumer Staples has occupied the middle ground, aligning closely with the market average.
If you hold shares in resource companies, you’ve likely enjoyed a prosperous year. However, the question remains: was this success due to astute management or simply benefiting from a broad market uplift? As the saying goes, “a rising tide lifts all boats.”
For technology investors, the past year may have been challenging. The key consideration is whether poor stock selection or a widespread shift in market sentiment was the primary factor. Remember, in the short term, the market can be a voting machine, driven by popularity, rather than a weighing machine, which assesses fundamental value.
The Shifting Sands of Sentiment: A Historical View
The perception of these sectors can change dramatically over time, as sentiment shifts. Examining year-end data (excluding the current year’s incomplete data) reveals this volatility:
- 2024: IT experienced a remarkable surge of 49.5%, while Energy saw a decline of 18.8%.
- 2023: IT continued its strong run with a 30.4% gain, while Energy experienced a slight fall of 3.8%.
- 2022: This year saw a significant reversal, with IT plummeting 34.2% and Energy climbing 39.7%.
- 2021: Both sectors had relatively flat years, with IT down 2.8% and Energy down 2.0%.
Imagine the emotional rollercoaster of an investor holding positions in these sectors across these different years. Feelings of elation, despair, self-congratulation, and self-recrimination would likely have been common. Yet, the underlying reality was simply market prices fluctuating and sentiment evolving. Comparing these sector performances to broader market indices during these periods could have led investors to feel like either massive winners or significant losers, albeit often for short durations.
Measuring Success: The Importance of Timeframe and Volatility
While keeping score in investing is essential to evaluate the worth of your time, effort, and energy – and to consider whether a passive index-based ETF might be a better fit – the timeframe over which you measure performance is critical. Allowing for volatility is also a crucial aspect of successful investing.
Even seemingly long periods can be deceptive. For example, the ASX Energy sector may show a 32.0% gain over the past five years. However, this entire gain, and more, has been concentrated in just the last three months of that 60-month period. Between March 2021 and December 2025, the Energy index was actually down 2.8%. The substantial 36% gain since mid-December is what has inflated the five-year return.
Similarly, the Information Technology sector is down 20% over the past five years. Yet, it experienced a 50% surge between March 2021 and October of last year before its subsequent decline.
These examples are not cherry-picked to mislead but to illustrate a fundamental point: if this article were written six months ago, the numbers and the resulting investor sentiment would have been dramatically different, even for the same five-year periods. This highlights how data, and the timeframe it represents, can significantly influence our perception of investment performance and our own abilities.
Beyond Share Prices: A Holistic Approach to Investing
Therefore, it’s crucial not to rely solely on share price outcomes, even over multi-year periods, to assess your investment performance. While ultimately, share prices and dividends are what matter for practical purposes like purchasing goods and services, the journey involves more.
The fundamental question for every investor, at the time of purchase and throughout their ownership, should be: “Is today’s price attractive, given the future I envision for this business?”
Two insightful quotes can guide this thinking:
- “Markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes
- “If the business does well, the stock eventually follows.” – Warren Buffett
Navigating the investment landscape is not always straightforward. Five years can feel like an eternity, particularly when share prices are declining. However, focusing on the underlying business and its future prospects, rather than short-term market fluctuations, is the most reliable way to tilt the odds of investment success in your favour.
