May 28, 2019
The theme for this week is: stock market cycles...explained.
Now, to be clear, I’m not talking about trying to time the market and get in and out at exactly the right time. That’s a fool’s errand, and if people could reliably do that, there would be a lot more billionaires in this world. I have yet to hear of a billionaire market timer, so keep that in mind.
What I’m talking about instead, is better understanding the stock market cycles and how they repeat themselves time and time again. Better understanding the cycles of the market will help you manage your emotions, and take advantage of the highs and lows in the markets when they inevitably happen.
So today, I want to illustrate how a better understanding of market cycles is crucial for managing your temperament at the highs and the lows.
In order to do that, let’s rewind to March 2009. The Dow Jones Industrial Average hit a low of 6,469.95 on March 6,2009, having lost over 54% of its value since the October 9, 2007 high. The S&P 500 was below 700 for the first time in 13 years, and Goldman Sachs put out a research report that warned the S&P could fall as low as 400. The economy was still in freefall. Unemployment numbers were hemorrhaging, and people were losing their homes to foreclosure everywhere you turned. A well-known hedge fund manager warned clients that they’d be better off buying shotguns to protect themselves in the inevitable social unrest that could follow if things got any worse.
I could go on, and if you weren’t personally devastated by the great recession, you certainly know someone who was. Personally, it was an instructive time, but when I look back on it, I have this almost visceral reaction and I try to shove the painful memories out of my mind immediately.
But something happened in March of 2009 that almost no one saw coming. The market bottomed out, and started it’s upward rise, that has continued today, over 10 years later.
Now you might say that no one could have seen this coming, and although it would have been difficult to perfectly time the bottom of the market, you would see that the signs were all there of a market bottom, if you understood and were paying attention to market cycles.
That’s because a down market cycle follows this consistent emotional pattern: unease, denial, pessimism, panic, capitulation...then bottom. After panic, when capitulation sets in and everyone has thrown up their hands and given up, that’s the time to buy. That’s when the market is near or at the bottom. The problem was, everyone was still selling.
And this isn’t new. This is how the stock market has been behaving since its inception. So now, hopefully you see why market cycles matter and why understanding their predictable patterns can help you make brave and smart decisions with your money.
That’s it for today, Thanks for listening! Tomorrow, come on back because I’m going to do a full explanation of the stock market cycle - both good and bad markets.
My name is Ashley Micciche and this is the One Minute Retirement Tip.
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