Eternal Wisdom, Timeless Graphics: Illuminating Your Investment Path

You know the saying about a picture being worth a thousand words. In the case of this post, the graphics are more about making feelings and trends tangible. I’ve seen a lot of charts and graphics over the last two decades as a market observer and participant. Only a few really stand out and are evergreen in their usefulness. The graphics below have been made and remade over the years. For sure you can find variations of them but, these are some of the ones that you should keep around as to how things work in a general sense.

The chart below is useful for identifying good times to look for opportunities as the economic cycle moves. If you pay attention to the business news you will roughly know the status of the economic cycle. Since you will likely be investing over time, this little chart will help ID when things are in favor (likely more expensive) and when things are out of favor (likely less expensive). For example, in a recession you are more likely to find tech stocks cheaper (time to buy) and consumer staples stocks (just hold what you have) more expensive. So, the better time to be buying is when good companies are out of favor in the economic cycle.

This next chart, while funny, is too true and can be a good tool for knowing where the economic cycle is and a reminder of where your mind should be (or not be). 

Euphoria is often a good indicator of the late expansion in the market cycle and just before stock markets decline. In my experience, this is when everyone thinks themselves a great investor and cab drivers are offering stock tips. This is when you should be cautious with your buying of stocks – prices are likely stretched. 

Conversely, when despondency and depression is when everyone is selling and it seems that no stock is worth owning. This is where your best opportunity to buy good companies cheap will reside. You have to be brave here. Again, if you buy in over time you will not catch the bottom but will get some great deals near the bottom of prices.

Just for good measure, I’m throwing in a very poignant quote from the famous economist John Maynard Keynes.

John Maynard Keynes

Often people apply Keynes quote to when markets are going up and they are sitting out missing a good run. The fact of the matter is that markets act irrationally to the upside and the downside. What does an irrational market look like?

Consider the onset and following months of the COVID pandemic. After a brief, but sharp, drop in the broad stock market and a halt to the global economy the stock market roared back. A huge move in stocks occurred before the first vaccines were available. That stock market surge went on much longer than most people would have thought and not for any sound economic reasons.

In general, I’m not a fan of trying to time the market. There was a time when market timing had its day in the sun. Today, with global central banks heavy hands on the economies, its harder than ever to try to time investments. Therefore, the only thing you can do is understand market cycles, investor emotions and do your best to take advantage of opportunities when they arise.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

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