Mastering The Market Cycle: Getting the odds on your side

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Alan: Okay, so I'm gonna start here with some of the questions we've gotten from the audience. Again, I just encourage folks to continue to think of questions and we'll get through as many as we can here. First one here, I think this is interesting, it's a question we probably all ask ourselves from time to time, what investment mistake have you made that comes to mind and what did you learn from it? And you know, the subtitle of the book I like a hell of a lot more than the title. The subtitle is 'Getting the Odds On Your Side' , and that's what I think ... You know, we never know what's gonna happen in the markets. We never can be sure of an outcome, but I think we can get the odds on our side by understanding where we are in the cycle. Now that's all a preface to your question. Where are we in the current cycle? Well, you know, I put out a cautionary, I wouldn't say bearish, but a cautionary memo in July of '17, and then I repeated it again in September or October of '17 and then again in July of this year. Doing this will, obviously enough, increase the chances that your portfolio will gain value in the future.

News turns less positive, the resulting price correction causes psychology to become less positive, which causes disinvestment, which puts further downward pressure on prices. But just because you can’t predict it exactly and just because the cycles are irregular doesn’t mean there is nothing to be learned about the subject. Even modest increases in odds can help significantly over time. The macro is certainly important,” Marks said. “The macro drives the markets these days and does so to a much greater extent than ever in the past, and so yes, important. But in my opinion, not knowable.”

11. The Real Estate Cycle

The market spends very little time at the happy medium, it spends the majority of time above or below the averages. Chapter 8: The Cycle in Attitudes Toward Risk The boom stage of the market is characterized by a period of rapid growth and increased investor optimism. In my experience this is extremely common knowledge. Of course, that doesn’t make it easy to put into practice in real life. The question is how? Additionally, having a clear and well-defined investment strategy can help investors stay disciplined and avoid impulsive decisions. Conclusion Warren Buffet said “the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs” and “be fearful when everyone is greedy, and greedy when everyone is fearful.”

Emotions play a significant role in market cycles, as they can drive investor behavior and influence market movements. Pronounced bargain prices are most likely to be found among things that conventional wisdom dismisses, that make most investors uncomfortable, and whose merits are hard to comprehend. During this stage, investors are more likely to take on greater risk and engage in speculative behavior, as they believe that the market will continue to rise.Skepticism calls for pessimism when optimism is excessive, and it also calls for optimism when pessimism is excessive. Chapter 9: The Credit Cycle Trying to know more than others about the “knowable,” the fundamentals of industries, companies, and securities. Marks’s memoshave a cult following on Wall Street and beyond, and anyone whose read them knows he is fond of adages. And true to form, he pulled out one in response to Bond’s question.

Extreme economic cyclicality is considered undesirable. Too much strength can kindle inflation and take the economy high that a recession becomes inevitable. Too much weakness on the other hand can cause companies’ profits to fall and can cost jobs. Thus it is part of the central bankers and treasury to manage cycles. Since cycles produce ups and downs that can be excessive, the tools for dealing with them are counter cyclical and applied with a cycle of their own. Ideally inverse to the economic cycle itself. However, like everything else involving cycles managing them is far from easy. Mastering the Market Cycle will help you understand when is the optimal time to invest given a market’s conditions. So when you put together the quantitative measures of evaluation and the qualitative indicators of behavior, I thought that the results called for caution. Now, of course, a little bit of the bloom is off the rose. So I summed this all up in a memo, September 26th of last year. The book was coming out October 2nd. I wanted the memo out before the book, and of course the memo, eventually, if you wait long enough, you're gonna have good timing. So that September 26th memo was good timing, as the market started to turn down on October 4th, but if you read that memo, I think you'll see the reasons for my caution. This is important to understand because the ability to grow is usually dependent on the availability of capital. When the credit window is shut, it can be difficult for many businesses to grow. Alan: Okay. Second of what I would consider the follow-up questions to one of your earlier comments was about really the key, about being emotionless in terms of your investment decisions, and the question is, how do you get there? For those of us that do get emotional and let our emotions impact us, what has worked in your experience that allows you to keep emotion out of the equation?The combination of positive psychology and the increase in activity causes asset prices to rise, which encourages more activity, further price increases and greater risk bearing. Mastering The Market Cycle uses the metaphor of a window. In short, sometimes it is open and sometimes it is closed and in fact, people in the financial world make frequent reference to just that: “the credit window” .. As in the place you go to borrow money. When the window is open financing is plentiful and easily obtained. When it is closed, financing is scarce and hard to get. Finally it’s essential to always bear in mind that the window can go from wide open to slammed shut in just an instant. There’s a lot more to fully understand this cycle. Including reasons for these cyclical movements and their impact – but that’s the bottom line. Much of investing is subject to gross generalizations and sweeping statements. Usually stressing positives due to greed and this seems particularly true in real estate. Everyone is heard things like “they’re not making any more land’, “you can always live in it”, and “its a hedge against inflation”. Mastering The Market Cycle explains that people eventually learn is that regardless of the merit behind these statements th