Mastering the Market Cycle: Getting the Odds on Your Side

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An empty building (a) has a replacement value, of course, but it (b) throws off no revenues and (c) costs money to own, in the form of taxes, insurance, minimum maintenance, interest payments and opportunity costs. There’s a range of outcomes, and we don’t know where [the actual outcome is] going to fall within the range.

But the author contends that the superior investor should, and often does, consider a third component: financial cycles. A host of independent developments — management decisions, technology changes, regulations, taxation, geopolitical events, natural disasters, etc. It’s converting that downward fluctuation into a permanent loss by selling out at the bottom that’s really terrible. Not knowing the future means being prepared for things that may not go as planned from a portfolio perspective.Economies, companies and markets operate in accordance with patterns which are influenced by naturally occurring events combined with human psychology and behaviour. Fluctuation in investors’ willingness to ascribe value to possible future developments represents a variation on the full-or-empty cycle. Marks reveals the hidden logic in carefully pinpointing market trends so that investors have the opportunity to improve their results. The credit cycle is an example of lenders, borrowers, and investors swinging between risk-averse and risk-tolerant.

Both Apple and Google state that they ensure that only users who have actually downloaded the app can submit a review. One of the most important things needed to achieve investment success is to clearly define your investment philosophy and diligently act upon that philosophy. For starters, it’s pretty much impossible to predict the distant future with greater accuracy than other investors.If you have faith in economics as a science not a theoretical social study with algebra added for ‘proof’, then this is for you. Widespread risk tolerance—or a high degree of investor comfort with risk—is the greatest harbinger of subsequent market declines. Lenders move from a cautious, risk-averse position unwilling to lend without higher rates and protection from losses to a risk-tolerant, willingness to lend at lower rates and no protection in place out of fear of missing out. When investors are in a pessimistic mood and can’t see more than a few years out, they can only think about the negative cash flows and are unable to imagine a time when the building will be rented and profitable.