Mastering the Market Cycle: Getting the Odds on Your Side

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If the secular growth rate is always positive, couldn’t you just invest and let your money sit there, allowing the short-term cycles to cancel each other out while you profit from the secular trend’s gradual growth? For starters, it’s pretty much impossible to predict the distant future with greater accuracy than other investors. The pendulum careens from one extreme to the other, spending almost no time at “the happy medium” and rather little in the range of reasonableness. Societies rise and fall, and they speed up and slow down in terms of economic growth relative to each other. By the end of these blinks, you should have a feel for how they work and, therefore, be that much closer to becoming a superior investor.

There are two kinds of people who lose a lot of money: those who know nothing and those who know everything. If you have faith in economics as a science not a theoretical social study with algebra added for ‘proof’, then this is for you. It’s important to note that exiting the market after a decline—and thus failing to participate in a cyclical rebound—is truly the cardinal sin in investing. To calculate the overall star rating and percentage breakdown by star, we don’t use a simple average.We all love to imagine ourselves to be independent-minded and maybe a little bit contrarian but truth is, with a few rare exceptions, almost everyone is guilty of joining in with all the other bulls and bears. If we all have the same information, come to the same conclusions, act on it in the same way, then outperformance is unlikely. When total fear replaces a high degree of confidence, excessive risk aversion takes the place of unrealistic risk tolerance.

Economies, companies and markets operate in accordance with patterns which are influenced by naturally occurring events combined with human psychology and behaviour. Though some guesses are more likely to be correct than others, an investor never truly knows what the outcome of an investment will be. Most economic forecasts extrapolate the current trend because it’s safe (career risk) and sticks to the status quo. Learning so much from this book as I am in 6 chapters, can relate so much to my own actions both negative and positive.And not the banker who loaned the money for its construction and then repossessed the project from the developer in the down-cycle.