THE FUTURE OF CYCLES – 17 – MASTERING THE MARKET CYCLE

Cycles in economies, companies, and markets

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If we follow above points mentioned by Mr.Howard Marks then definitely we can take advantage of market cycle and able to generate above-average return.

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “HAVING A SENSE FOR WHERE WE STAND”

The above link will help to understand how good news flows and media get crazy with higher index targets. In the above link I have compared 2017 with 2007 and given indication in 2017 for the upcoming bubble.

Nifty 12000 – Here, we can see that the media start celebrating when the market has approached new high. Such acts motivate to retail investors and that will lead to more market participation.

We can get an indication of the market bubble when we observe our surroundings.

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Investors try to predict bottom and still in the Fear Of Missing Out (FOMO). I am getting calls from many of people who are unaware with market, own little knowledge of market but tend to predict stock moments. They approach me with catching bottom, ask for advice (not actually, they want to get confirm with me) that they should invest right now otherwise they will miss out current opportunity.

People are involved in any of the decision-making processes whether it is in the economy, investing world, or anything else. So those human emotions also getting involved in the process. This resulted in more euphoric behavior at the wrong time and more desperate behavior at the wrong time by people. That will have resulted in the cycle. If the machine involves in the economy then it will not have a cyclical move.

The market has never moved in a straight line in the past and never will be in the future. So that we need to understand the cycle and need to take benefits from it. People think that excess bull or bear remains but that excess behaviour has to correct and that will have resulted in the cycle.

We can keep journal for events happens to our surrounding, major corporate deals, the behavior of people with us knowing that we are an investment professional, hot sectors which attracting major participation, junk starts flying, innovation in valuation matrix, etc. We cannot predict when the bubble will burst, but we can save ourselves from getting burst during bubble takes a journey towards burst. When we initially prepare ourselves for the upcoming bubble – burst then it will be going to happen that others will consider us a fool but we should accept being a fool rather than face huge damage to our wealth.

BIBLIOPHILE: THE MOST IMPORTANT THING BY HOWARD MARKS “COMBATING NEGATIVE INFLUENCES”

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

Read for more detail: Mastering The Market Cycle: Getting the odds on your side by Mr.Howard Marks

07 – THE PENDULUM OF INVESTOR PSYCHOLOGY – MASTERING THE MARKET CYCLE

Psychology/emotions affect corporate profits and investment cycles as well. We have seen the pendulum swings in both the extreme and investment world also moves in the same way.

Between euphoria and depression, between celebrating positive developments and obsessing over negatives, and thus between being overpriced and underpriced.

And few other observations of the pendulum – between greed and fear, between optimism and pessimism, between risk tolerance and risk aversion, between credence and scepticism, between faith in value in the future and insistence of concrete value in the present, and between the urgency to buy and panic to sell.

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Above is average return but what about good and bad cycle?

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When people feel good about the investment, Optimistic about it then they are in the greed and buy more which resulted in the increase of assets prices. On the other hand, when they do not feel good about the investment, pessimistic about it then sell their assets which reduces the prices of assets. Sometimes market plays between a range where greed and fear both having a stronghold.

When investors do not feel fear then prices of assets keep on raising up. Similarly happens during the tech boom 1999-2000, subprime in 2003-2007 and current scenario.

Somehow the greed evaporated and fear took over. “Buy before you miss out” was replaced by “Sell before it goes to zero.” When greed is high then people find for next Infosys, top-performing private sector banks but when fear is higher than seeing each as a next Yes bank, DHFL.

Other factors such as euphoria and depression are an extension of greed and fear. Continuing greed translated into the euphoria and fear into the depression.

When prices of assets raise then people believe in any stories prevailing in the market but reversely when prices falling then cheap assets does not get the attention of investors.

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Superior investors are wise enough and they buy assets when it available at the discount from intrinsic value and there will be a potential to increase in intrinsic value.

For making such investment decisions, they need to keep a balance between greed and fear. Very few investors remain cool and unemotional to stay at the midpoint of fear & greed. Else, the majority of people remains greedy when everyone is optimistic and fearful when everyone is pessimistic. The pendulum moves from one extreme to the other and remains quiet for midpoint. For becoming a superior investor, we need to be unemotional to such swings. Emotional people will require a great deal of self-awareness and self-restraint for becoming a successful investor.

People generally remains biased with their emotions to reach any conclusion.

INTEREST RATE CUTS: DOES IT PROVIDE LONG-TERM BENEFITS?

Many times, it has been noticed that news over both extreme – positive and negative but market keep on rising.

So that, Interpretation of the data has importance. During the depression time, positive news getting ignored and negative news only getting rewarded. Reversely, during the euphoric situation, negative news getting ignored and positive news only getting rewarded. Saving ourselves from such traps results in the superior investment returns and long-term survival of our wealth.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

Read for more detail: Mastering The Market Cycle: Getting the odds on your side by Mr.Howard Marks

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