How Understanding Market Cycles Can Be Very Lucrative

by Michael | 1 Reply

Smart investors know that all investments run in cycles.  Because of this, market cycles are one of the most important aspects of investing to learn and understand.

With a knowledge of market cycles you’ll be able to put your money to work in markets that are moving up in price and avoid those declining in price.

The Investing “Big Picture” Is Crucial

The “big picture” is vitally important to your success as an investor.  It’s easy to get caught up with day-to-day investing decisions such as which stocks to buy or the price of gold or silver.

But as you’ll soon see, stepping back to view a larger picture of investing is key if you want to make good long-term investing decisions.

Market Cycles

All markets move in cycles. The stock market has its day in the sun, then real estate makes its big move, then bonds, then gold and silver, then back to stocks, etc.  These markets can move individually or in groups.

These cycles are driven by local, national, and global economic and geopolitical events (as well as investor sentiment), and they repeat over and over.

How investors react to what’s going on in the world (specifically, whether they become optimistic or pessimistic) determines if a market goes up or goes down.

This is very important to understand.  It’s how investors view changes to market conditions that influences how they react – that is, if they buy or sell in the market.

Market Cycles Chart

Below is a chart of the market cycles for the last 50 years:  To understand the chart, know that:

A bull market is a market that is rising in price over time

A bear market is a market that is falling in price over time (technically, down 20% from its peak).

MARKET CYCLES CHART 

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Important Points

There is always a bull market cycle going on in one or more markets at any given time, and a bear market cycle in one or more markets at any given time.

Stocks and bonds tend to rise in 20-year cycles, with periodic bear market corrections that usually last 3-9 months.

Real estate and precious metals tend to move in 10-year cycles.

And every 5 years or so there is some calamity that affects all the markets, but only for a short time.

Current Bull Market Cycles

As of March 2022, rising inflation and rising interest rates are telling the story of a changing macro investing environment.  Covid-19 hit the world in February 2020 and has caused massive changes in how the world works and plays.  The U.S. Government’s injection of trillions of dollars into the financial system and the economy has altered many markets included stocks, bonds, and real estate, creating massive bubbles that are in the process of bursting.

Stocks

After a 13-year run, the current secular bull market in stocks looks to be over.  As of March 2022 the Nasdaq is in a bear market and many former leaders are down 50% to 80% from their highs.  The trend is no longer up.

Real Estate

Real estate is still in a bull market, but as of March 2022 it is exhibiting all the signs of a classic bull market parabolic run.   Real estate is always a great store of value as long as you can buy it for the right price.  Right now that is not the case.

Commodities

With rising inflation, commodities are in a new bull market.  Oil and gas, precious metals, chemicals, and agriculture are all rising in price.

Surfing For Profits

The best investors are like surfers; they ride these cycles like waves, jumping in when a wave is forming, and getting off when the wave is ending.  Then they are back to waiting for the next wave.

Huge fortunes come to those who can catch these long-term waves early and ride them.  How do they do it?  They use the following market cycle “secret”:

A market that ends in a bubble, whether in stocks, bonds, real estate, or gold, is usually followed by a strong bear market.  And this bear market usually coincides with the emergence of a new bull market in some other market.

For example, gold and silver took off to new all-time highs when stocks and real estate went into a bear market from 2006-2009.  Once stocks and real estate began their new bull markets (2009 for stocks, 2011 for real estate), gold and silver soon topped out and entered their current bear market phase.

Currently as of March 2022 stocks are just a couple months into a major correction.  Real estate is showing sign of topping out, but commodities are emerging as the recipients of rising inflation.

The Rich Get Richer And The Poor Get Poorer

One of the effects of a bear market is that financial assets transfer from weak hands to strong hands.  In other words, the rich usually get richer, and the poor get poorer. Why?

The reason is that the rich understand market cycles. They have the financial education and knowledge to sell at the top and raise cash.  They have the financial strength to ride out the storm during a correction or a bear market, and then are able to purchase assets like stock, real estate, and gold and silver at low giveaway prices at the bottom of a bear market.

Who usually are the ones selling at the bottom?  The uninformed, uneducated small investor.

Decide which side you want to be on –  the side of the rich, or the side of the poor.

Make sure you continue to learn all that you can about investing.  Financial education is power!  And potentially very profitable!!

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