When it comes to the market cycle it’s easy to lose sight of concepts during chaos. Meanwhile oversimplified schematics often instill a false sense of confidence. So I thought it would be worthwhile revisiting my “nuanced version“ of the market cycle.
The simple version says that you go in a nice orderly fashion from boom to bust, expensive to cheap, and all you need to do is buy low and sell high. In practice emotions, peer pressure, industry forces all conspire against us through every step of the way. That’s why you need to be data and evidence driven in forming a clear view of where you are at in the cycle and what kind of forward-looking risk vs reward setup is on the horizon.
As I attempt to explain in this visual, the best time to go all-in on stocks is when the cycle is turning up from the lows (if you go too early you risk falling into value traps and the perils of catching a falling knife).
On the flipside, the worst time to be all-in on stocks (and best time to lean into defensives, diversifiers, and hedges) is when the market turns down from the highs (again, if you go too early you risk getting left behind, falling victim to FOMO, and if you’re in the profession; getting fired).
Lastly, I’ll leave you with a quote from myself:
“don’t take it in a negative or pessimistic sense, it’s about learning to love the cycle; to be a victor not a victim of the cycle, and above all to keep perspective.”
$S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $Dow Jones(.DJI)$
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