Mastering the Market Cycle: Getting the Odds on Your Side

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Well, we can say of financial cyclicality what Mark Twain is reputed to have said of history: it doesn’t repeat itself, but it does rhyme. As any system grows toward its maximum or peak efficiency, it will develop the very internal contradictions and weaknesses that bring about its eventual decay and demise.

The wisest investors learn to appreciate these rhythms and identify the best opportunities to take actions which will transform their finances for the better.When total fear replaces a high degree of confidence, excessive risk aversion takes the place of unrealistic risk tolerance. There’s a reason for why Buffett says if he finds Howard published a new memo, he stops what he’s doing and reads it right away - yes, Buffett, probably the best to ever do it. Distressed debt is bought on the basis that the company can no longer pay the interest and principal. People who are successful run the risk of overlooking the fact that they were lucky, or that they had help from others. Most economic forecasts extrapolate the current trend because it’s safe (career risk) and sticks to the status quo.

Well, here’s the thing: the secular trend also goes through cycles, though they take much longer to play out. To calculate the overall star rating and percentage breakdown by star, we don’t use a simple average. The debate around market timing and cycles is an important and timely one and his choice to dive deep into this subject in his second book is more than welcomed.Any opinion on the future should be based on: 1) what’s going to happen, and 2) the likelihood of being correct. There’s a range of outcomes, and we don’t know where [the actual outcome is] going to fall within the range. Every day, countless investors are closely monitoring the media and paying attention to the ups and downs of this or that market. Changing attitudes towards risk leads investors to be too risk-averse or too risk-tolerant at times.