Navigating The Market Cycle with Stocks

Navigating The Market Cycle with Stocks

Achieving Market Success: Your Guide to Navigating Market Cycles

Updated March 2023

Updated views are posted towards the end of the article

One of the best places to invest in is the stock market, provided one understands how the masses operate. Understanding the Market Cycle is also very important. The mass mindset is wired for failure; it is programmed to panic when anything stressful presents itself, which is very dangerous in the stock markets. In short, as a business investment, the stock market could be considered to provide the best return on capital, provided one does not allow one’s emotions to do the talking. Hence, the stock market is one of the best investments for kids because the younger you are, the more risk you can take.

Look at the recent headlines; all the top players are going out of their way to create a mountain out of a molehill. I wonder why? Are they doing this because they love the masses so much? We think not; the idea is to fleece the masses both ways, on the way and down.

Nothing drives the masses more insane than uncertainty. Suddenly create the illusion of luck, and all hell will eventually break loose.  All hell is the secret code word for a long-term opportunity.  Individually these stories are not a big deal, but what stands out is all these comments were made around the same time; it almost seems like a coordinated event.  If done correctly, the stock market could be one of the Best Business To Invest In.

 Stan Druckenmiller on the markets 

Following a tumultuous three-month period in the financial markets, a prominent billionaire investor has sounded the alarm that trading conditions could potentially worsen.

This cautionary warning comes in light of central banks withdrawing stimulus from a global economy that is already experiencing a slowdown. The investor anticipates bleak returns on stocks in the coming years and has consequently been buying US Treasuries, anticipating that yields will continue to decrease. While the indicators the investor historically relies upon in their business are not yet signalling red flags, they are undoubtedly showing signs of caution and concern (amber).

 Greenspan Says Politics Today Are Unlike Any He’s Seen

Former Federal Reserve Chairman Alan Greenspan said the current state of U.S. politics is unlike anything he’s seen.

“I was in the U.S. government for almost 20 years and I’ve never seen anything remotely close to what we’re observing today,” Greenspan said on Bloomberg TV on Wednesday. “I think the economic outlook is being significantly affected by the poor politics,” he said, adding that he’s “very much concerned.”

Janet Yellen is worried about the next financial crisis.

In a recent speech at the Women in Housing and Finance holiday event, Janet Yellen, former Federal Reserve Chair, expressed her concern about the potential risks of a future financial crisis. Yellen highlighted her apprehensions about the reversal of financial safeguards, which were put in place after the previous crisis, and the mounting corporate debt. Yellen further warned against the current deregulatory approach and emphasised the need to maintain fundamental safeguards created in Dodd-Frank. Her remarks were met with significant interest and concern from the audience, as we approach a decade since the previous financial crisis.

Market Cycle: Understand boom & bust cycles

Mass Media’s function is to create mountains from molehills, which kids should understand as soon as possible.

In every instance, the media is overhyping the situation and going out of its way to create even scarier scenarios. We have not added all the stories about the trade war and how Xi is supposedly acting tough one minute and then ready to negotiate the next.  Nor have we discussed the big deal made over Trump’s decision to leave Syria, and the list continues.

To create even more uncertainty, it appears all the big players are playing the same game as they all stand to benefit.  This is like insider trading without the threat of punishment.  The top players are pretending to be worried, but they are the first ones to rush out and pick up all the beautiful gems sold at a discount when the market crashes.

At least there was a proper trigger for that event. Bullish sentiment surged to a seven-year high, even though it only maintained this reading for roughly ten days. Had that correction morphed into a back-breaking correction, we could justify it as at least two triggers were there; bullish sentiment soared to a seven-year high, and the markets were trading in the extremely overbought ranges. This time, bullish sentiment did not reach the 54% mark, and our indicators had already pulled back from the overbought ranges. They were dangerously close to the oversold ranges on the monthly charts.

Higher interest rates were never an issue.

The next interest rate hike was already priced in, and so were the effects of the tariffs.  However, when these events were weaponized, they became an issue.   Now that the big players have seen the benefits of this type of attack first hand expect it to be used ruthlessly in the coming years.  However, this weapon will not affect you if you stop and focus on the forest instead of a single tree.

After everything was said and done, you would have made a fortune ten years later if you had held onto your shares from the 2008 crash and added more as the market tanked incrementally.   Let’s look at some random examples. To simplify matters, we will assume that one lot of each stock was purchased roughly at the highest price during the 2007-2008 top, and an equal amount was purchased roughly at the lowest price in 2009.  However, any person employing simple Technical Analysis and Mass Psychology would have achieved a better average entry price, even though they did not purchase at the top or the exact bottom.

The Market Cycle: Understanding Boom and Bust Phase

Teaching kids about market cycles is crucial to their long-term financial success. The media often sensationalizes events, making them appear more significant than they are. Kids need to learn that market corrections and crashes are not the end of the world but can instead present opportunities.

The Importance of Understanding Market Cycles

Understanding market cycles is essential for kids to learn about as they grow up. By understanding the long-term trends of the stock market and investing in quality stocks, kids can benefit from market corrections and crashes. Time is a valuable asset that should be taken advantage of, and investing in a diversified portfolio of quality stocks can help reduce risk and increase the chances of success.

The 1987 crash, the 08-09 crash, and the COVID crash all presented significant buying opportunities for those with a long-term outlook. These events are now just blips on long-term charts, and the markets have rebounded, reaching new highs. Even the current dilemma the market is facing in 2023 is likely to present an opportunity in the long run.

The Benefits of Investing in the Stock Market Cycles

Kids have time on their side and can afford to take on more risk and invest in stocks for the long term. It’s essential to teach kids about the benefits of investing in the stock market, despite the potential for short-term losses. Investing in a diversified portfolio of quality stocks can help kids benefit from the stock market’s long-term trend.

When investing, focusing on the long-term trend is crucial instead of trying to predict short-term fluctuations. Markets will always have ups and downs, but the trend is upward over the long term. Investing in a diversified portfolio of quality stocks can help kids benefit from this long-term trend.

Market Cycle: Risk Management

It’s also important to teach kids about risk management and the importance of diversification. Investing all of your money in a single stock is risky and could result in significant losses if the company experiences financial troubles. Investing in a diversified portfolio of stocks from different industries and sectors can help reduce risk and increase the chances of success.

In conclusion, understanding market cycles is crucial for kids’ long-term financial success. By investing in a diversified portfolio of quality stocks and managing risk through diversification, kids can benefit from the stock market’s long-term trend. Even market corrections and crashes can present opportunities for those with a long-term outlook. It’s essential to focus on the long-term trend instead of short-term fluctuations and take advantage of the time to ride out market cycles.

FAQ:  Understanding the Stock Market Cycle 

Q: Why is the stock market a good investment for kids?

A: The stock market can provide the best return on capital, provided one does not allow emotions to dictate investment decisions. Kids can take more risks, making the stock market a good investment option for them.

Q: Why is understanding the Market Cycle important?

A: Understanding the Market Cycle is crucial for making informed investment decisions. The mass mindset is wired for failure and is programmed to panic when anything stressful presents itself, which is very dangerous in the stock markets.

Q: What are the red flags in the current stock market environment?

A: The market is currently overvalued, with many stocks trading at historically high price-to-earnings ratios. Corporate debt levels are at all-time highs, and many companies borrow money to buy back their shares, artificially inflating stock prices. Additionally, inexperienced retail investors are jumping into the market without proper knowledge or experience, making emotional decisions based on social media hype.

Q: What should investors focus on when investing in the stock market?

A: Investors should focus on the trend rather than being a bull or a bear. The market trend is your friend, and everything else is your foe. It is advisable to focus on the long-term trend and invest in fundamentally sound companies with a history of delivering value to shareholders.

Q: What are the key takeaways for investing in the stock market?

A: The stock market could be one of the best investments for kids, provided they understand the Market Cycle and have a long-term investment horizon. Disasters and market downturns present opportunities for investors who know how to navigate the market cycle, and the focus should always be on the long-term trend. Investing in stocks can provide a higher return on investment than most other assets, but it requires patience, discipline, and a sound investment strategy.

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