Mastering the Market Cycle: Getting the Odds on Your Side




If you study past cycles and Mastering the Market Cycle, You will understand their origins and remain alert for the next one, you will become keenly attuned to the investment environment as it changes. You’ll be aware and prepared while others get blindsided by unexpected events or fall victim to emotions like fear and greed.


The odds change as our position in the cycles changes. If we don’t change our investment stance as these things change, we’re being passive regarding cycles; in other words, we’re ignoring the chance to tilt the odds in our favor. But if we apply some insight regarding cycles, we can increase our bets and place them on more aggressive investments when the odds are in our favor, and we can take money off the table and increase our defensiveness when the odds are against us.

Investing is a matter of preparing for the financial future. It’s simple to define the task: we assemble portfolios today that we hope will benefit from the events that unfold in the years ahead.For professional investors, success consists of doing this better than the average investor, or outperforming an assigned market benchmark (the performance of which is determined by the actions of all the other investors). But achieving that kind of success is no small challenge: although it’s very easy to generate average investment performance, it’s quite hard to perform above average.

One of the most important foundational elements of my investment philosophy is my conviction that we can’t know what the “macro future” has in store for us in terms of things like economies, markets or geopolitics. Or, to put it more precisely, few people are able on balance to know more about the macro future than others. And it’s only if we know more than others (whether that consists of having better data; doing a superior job of interpreting the data we have; knowing what actions to take on the basis of or our interpretation; or having the emotional fortitude required to take those actions) that our forecasts will lead to outperformance.

In short, if we have the same information as others, analyze it the same way, reach the same conclusions and implement them the same way, we shouldn’t expect that process to result in outperformance. And it’s very difficult to be consistently superior in those regards as relates to the macro.So, in my view, trying to predict what the macro future holds is unlikely to help investors achieve superior investment performance. Very few investors are known for having outperformed through macro forecasting.

Warren Buffett once told me about his two criteria for a desirable piece of information: it has to be important, and it has to be knowable. Although “everyone knows” that macro developments play a dominant role in determining the performance of markets these days, “macro investors” as a whole have shown rather unimpressive results. It’s not that the macro doesn’t matter, but rather that very few people can master it. For most, it’s just not knowable (or not knowable well enough and consistently enough for it to lead to outperformance).


  • Why Study Cycles?
  • The Nature of Cycles
  • The Regularity of Cycles
  • The Economic Cycle
  • Government Involvement with the Economic Cycle The Cycle in Profits
  • The Pendulum of Investor Psychology
  • The Cycle in Attitudes toward Risk
  • The Credit Cycle
  • The Distressed Debt Cycle
  • The Real Estate Cycle
  • Putting It All Together—The Market Cycle
  • How to Cope with Market Cycles
  • Cycle Positioning
  • Limits on Coping
  • The Cycle in Success
  • The Future of Cycles
  • The Essence of Cycles

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