- Committing to the Long Term to the Long Term
- Tuning into Market Trends
- Consumer and Producer Participation
- Seven Strategic Paths to Business Triumph
- Driven by Passion for Growth
- Significance of Brand Value
- Important Financial Decision-Making Principles
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From the Ground Up
Tuning into market trend
03/23/2023
Cycles of Opportunities: Maximizing Your Investments
There is a time for everything and a season for every activity under the heavens
Ecclesiastes 3:1 (NIV)
Timing the market is impossible, which makes it challenging to decide when to buy, hold, or sell an asset. However, understanding the market cycle is crucial for investing in assets because it can help predict future market trends and mitigate risks.
The economic cycle comprises four stages, measured by GDP: expansion, peak, contraction, and trough (“Economic Cycle - Overview, Stages, and Importance”). During the expansion phase, the economy flourishes with high consumer confidence. The peak stage witnesses a slowdown in growth, while the contraction phase experiences a decline in economic activity. The trough stage reflects hitting rock bottom before commencing the recovery process. Evaluating the stage of the economic cycle can signal where the economy may be headed.
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Tuning into market trend
03/23/2023
Similarly, the stock market cycle occurs over a 12-year cycle (Little and Rhodes 135) and has four phases: accumulation, markup, distribution, and decline (Lehman). The accumulation phase is marked by institutional investors quietly buying stocks, while in the markup phase, public interest increases. During the distribution phase, institutional investors start selling stocks, and public interest declines. Finally, in the decline phase, the stock market drops sharply. These phases offer insights into financial behavior and market trends.
Investors can use technical trading indicators like the MACD to identify trends in the market. The MACD calculates the difference between two exponential moving averages (EMAs), providing information on market patterns and momentum (Loo).
Real estate assets have a cycle of around 18 years, with four stages: recovery, expansion, hyper-supply, and recession (Nicolais). Investors can assess the stage of the cycle and make decisions accordingly. For instance, the recovery phase might present opportunities to purchase properties at reduced prices, while the expansion phase could lead to price hikes due to heightened demand. Real estate assets, being more tangible and secure than intangible assets like stocks or cryptocurrency, offer stability but are less liquid, meaning they cannot be easily converted into cash.
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Tuning into market trend
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When holding an asset, it is important to consider demand, as it significantly impacts its value. If there is high demand for an asset, it is likely to maintain or increase in value. Taking advantage of an attractive opportunity may be worthwhile, but it is crucial to balance it with the underlying demand to avoid purchasing at an inflated price.
Furthermore, interest rates significantly influence market cycles and must be taken into account. It is important to note that unexpected events and news can disrupt these cycles at any time. By conducting extensive research and considering these factors, investors can increase their chances of success while minimizing risks in their investments.
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Tuning into market trend
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Works Cited
“Economic Cycle - Overview, Stages, and Importance.” Corporate Finance Institute, 12 December 2022, https://corporatefinanceinstitute.com/resources/economics/economic-cycle/. Accessed 23 March 2023.
Lehman, Richard. “Market Cycle: Definition & 4 Stages.” Seeking Alpha, 24 February 2022, https://seekingalpha.com/article/4484891-market-cycle. Accessed 23 March 2023.
Little, Jeffrey B., and Lucien Rhodes. Understanding Wall Street, Fifth Edition. McGraw-Hill Education, 2010.
Loo, Andrew. “MACD Oscillator - Guide to Moving Average Convergence Divergence.” Corporate Finance Institute, 16 February 2023, https://corporatefinanceinstitute.com/resources/capital-markets/macd-oscillator-technical-analysis/. Accessed 23 March 2023.
Nicolais, Teo. “How to Use Real Estate Trends to Predict the Next Housing Bubble | Harvard Extension School.” Harvard Extension School, 18 October 2016, https://extension.harvard.edu/blog/how-to-use-real-estate-trends-to-predict-the-next-housing-bubble/. Accessed 23 March 2023.
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