Investors who disregard where they are in cycles are bound to suffer serious consequences. In order to get the most out of this book, an investor has to learn to recognize cycles, assess them, look for the instructions they imply, and do what they tell him to do.
Investors need to study three main areas:
Risk is all about uncertainty. Even though many things can happen, only one will happen.
A: Recovery from an excessively depressed lower extreme, toward the midpoint.
B: The continued swing past the midpoint, toward an upper extreme or high.
C: The attainment of a high.
D: The downward correction from the high back toward the midpoint.
E: A continuation of the downward movement past the midpoint, toward the new low.
F: The reaching of a low.
G: Recovery from the low back toward the midpoint.
Keep in mind that:
The output of an economy is the product of hours worked and output per hour. Thus the long term growth of the economy is determined by fundamental factors like birth rate and the rate of gain in productivity.
Long term trends have given the economy and stock market a strong uptrend over several decades:
Central bankers have dual responsibilities that are in opposition to each other:
When governments want to stimulate their country’s economy, they can:
When governments want to slow their country’s economy, they can:
The mood swings of the securities markets resemble the swing of a pendulum. They swing between the following:
Superior investing doesn’t come from buying high-quality assets, but from buying when the deal is good, the price is low, the potential return is substantial, and the risk is limited. These conditions are much more the case when the credit markets are in the less euphoric, more stringent part of their cycle.
If the market were a disciplined calculator of value-based exclusively on company fundamentals, the price of a security wouldn’t fluctuate much more than the issuer’s current earnings and the outlook for earnings in the future.
Three stages of a bull market:
Three stages of a bear market:
The investor’s goal is to position capital so as to benefit from future development. The Key to accomplishing this goal is:
There are three ingredients for success:
If you have enough aggressiveness at the right time, you don’t need that much skill. Good timing in investing can come from diligently assessing where we are in a cycle, and then doing the right thing as a result.
There are six main components (or three pairings) to the formula for investment success:
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