Knowing about economic and market cycles are very important in investing. An investor should evaluate the current cycle of economy and industry. No one can make profit in recession period.We should invest in cycles of growth and recovery. See the below graph.It shows the movement in an economy over a long time horizon. Avoid buying stocks at bearish market. Look into the economic factors. Is the policy measures of government is positive? How the Central Bank tackle the economic problems ? What is the growth rate of industry and agriculture? How much rise happened in the net profit of the company last quarter and year?
If economy is stable,half job is done. An investor should check the industry trends and identify the market leader.Physical market share and Competitive advantage of the company determine returns for an equity investor.Knowledge of financial ratios will help us to identify the right company to invest.
Stock and Metals prices always move with the trend.Three types of financial market trends are: Uptrend, Down trend and sideways trend. Up trend provides good returns for investor without intense home work. Indian stock market was in an uptrend since 2003 to 2008.After the bull phase,it faced bearish market for eighteen months.After the crash of sensex on 2008, it revived to the previous level three times. Sideways market face volatile situations. It create confusion among public. Investing in sideways market cannot make you wealthy.
An intelligent investor should wait for the right opportunity in the market cycle. Normally, sideways market is the starting of up or down trend.We should know the exact price ranges happening in this period.Range bound cycle is ideal for online traders who use chart analysis and close monitoring of stock and metal prices. Identifying the right entry and exit bring profit.When you invest in gold and other metals, fluctuations are at par with the international prices.If international price is falling down, exit your investments.
Cycles of growth and recession is applicable in all assets.
Selling a property
is difficult in a stagnant economic condition. Liquidity is the main problem in
these situations. Often, Common people invest in stocks and metals at
peak prices with a mindset of euphoria or an exaggerated excitement.That is why
many people loose money in the markets. Identification
of market cycle is a hidden secret of value investing.We should invest after the depression at the time of
hope.Gains in revival periods will be
fast.Do not miss this opportunity in stocks,metals or real estate.
Follow the below rules in your investments.
1. Examine the prevailing economic cycle before investing.
2. Do not invest in recession period and stagnat market conditions.
3. Check the cyclical movement in each asset.
4. Avoid buying shares or gold at the peak price to protect your capital.
5. Invest at bottom, at the start of boom or recovery
6. Never buy with excitement and euphoria.
7. Do not chase the market.Invest when people are afraid and valuation is attractive.