All things have a natural cycle.
The sun rises; the sun sets.
The tide comes in; the tide goes out.
Jobs are easy to get; jobs are hard to get.
Whether we’re talking about cycles in nature or in the economy, there’s a natural ebb and flow to all things.
If all you’ve known is the sunrise, it’s hard to imagine that a sunset is even possible… simply because you’ve never seen one.
The same is true of economic cycles.
If all you’ve ever seen is an economic boom, it’s hard to imagine what a recession looks like.
If all you’ve known is price stability, it’s hard to fathom what inflation looks like.
The key is to recognize that cycles exist in everything. Some actions — like getting a job — are easy to do in an economic boom. Other actions — like keeping a job — are harder to do in a recession.
A lot of people assume, unconsciously or otherwise, that favorable conditions will persist pretty much forever.
This is not realistic.
It’s useful to prepare for difficult times when things are really good. This can be an emergency savings fund or cash reserves on the balance sheet. It can be putting a first aid kit in the car when nobody is currently injured.
Make sure your decisions, actions, and plans still work during both phases of any cycle.
Are you prepared for all phases in the cycle? Comment below with your thoughts.
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8 thoughts on “Market Cycles”
Perfect! It is used in all circumstances…
Very valid and real given the current market environment. In my experience, I do find it valuable to have first aid kits and financial reserves built up during times of plenty. However, I find balancing the safety net with the scarcity mindset requires regular check ins (speaking for myself) otherwise I find my scarcity mindset takes over and saves too much.
In my view, characterizing observations in economic trends as “natural” cycles is inaccurate. It makes for a simple analogy, but economic trends are dramatically influenced by human factors (e.g., governments, central banks, and other wealthy influencers). I don’t agree with the implication that the trend is unavoidable, rather it’s due to greed, abuse of power and manipulation, etc… and that’s why many today are seeking revolution via crypto currency and Blockchain technologies.
Great advice on emergency preparedness. This also should include spending within our means and getting out of debt during good times, which requires something very unnatural: sacrifice. It should also be noted that the time to prepare is before we’re in the emergency (quote by Thomas S. Monson: “When the time for decision arrives, the time for preparation is past.”)
Mitch – I completely agree human factors exacerbate market cycles, but do think they occur regardless (though the swings aren’t as wide). Love the Monson quote. I’m going to write that one down. -Victor
No. I need more info. to be prepared.
One of the first things I was taught in my LifeGuard training, was the “Reverse.” This is the principle that as the life saver- you must, first and foremost, protect your own well being in order to help anyone else. The Reverse was putting yourself in a position to get away from a drowning victim if they tried to climb on top of you (which they often do…) and then reapproach the victim from a position of control, get them under control, and then save them. If lifeguards didn’t approach a rescue with the knowledge that they had to avoid becoming a victim, at all costs, there would be far fewer rescues.
Preparing, while you have the resources- emotionally, physically, intellectually – in advance allows you to stay safe while also being prepared to rescue others. Thanks Victor. Your insights are really valuable.
Hi Keith – Long time no see. Hope you’re well.
Thanks for sharing about lifeguards. I had a vague sense of this but didn’t realize they have it down to an explicit methodology.
-Victor
Human are fairly proficient at preparing for disasters/cycles/etc. that they have experienced, but quite poor at preparing for an unknown disaster. e.g. Dodd-Frank as a response to 2008, but the next financial crisis will be different.