Mastering the Market Cycle: Getting the Odds on Your Side

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During this stage, investors are more likely to adopt a buy-and-hold strategy, as they believe that the market will continue to rise. 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. In this chapter Marks also goes into significant detail about how the global financial crisis happened, and how at the bottom of the cycle forces were in place to cause a rebound. Basically this is a specialized part of the credit cycle, described in the last chapter, that Marks has particular expertise in. 11. The Real Estate Cycle

Prosperity brings expanded lending, which leads to unwise lending, which produces large losses, which makes lenders stop lending, which ends prosperity, and on and on. Howard has posted a 14 point list explaining the real estate cycle in the memo Ditto, January 07, 2013.

In an extreme bubble, all the rational investor has to do is be able to identify nutty behavior when you see it. Try to behave as an observer viewing with detachment from the sidelines. So let’s go through each chapter of the book and summarize the main arguments. I’ll provide some of my own color commentary as we go along, too. Table of Contents The other thing that I talk about in the book, cycle positioning, which is trying to have more in the market when the market is low in its cycle and about to perform well, and take some chips off the table when it's high in the cycle and not so attractive, again, this is embroidering around the edges. Try to do better, because of course, if you don't do better than average, you're not going to make a living for long in our business, but still, the fundamental secret to investment success is long-term compounding. So you can forget long-term forecasting. It’s much wiser to pay attention to what the author calls “the knowable” and base your short-term predictions off that knowledge.

Most forecasts do not add value or lead to investment success. See chapter 14 of The Most Important Thing for discussion on “what we don’t know.” And what I wanted to ask you about is patience and the importance of patience because in your book, I don't know if you explicitly say it but you're talking about the market cycle, which implies market timing, but I know you're not talking about market timing. So you have to ... so there's this element of patience that has to ... 'cause you could be right, you know, early, and then have to wait for some time. So I'm just curious about how you've been able to have that patience. Is it process? Is it personality? Is it people? What's driven your success with that?Readers should be aware that this book is not a comprehensive guide to market cycles. There is no analysis of the economic cycle, no mention of the commodity cycle or the role of rising oil prices in so many economic downturns, and no discussion of the political cycle. The way investors are collectively viewing risk, and behaving in regard to it, is of overwhelming importance in shaping the investment environment in which we find ourselves. The state of the environment is key in determining how we should behave with regard to risk at that point.