A Refresher on Market cycles

Monday, October 20, 2008

First: Anand won game five of World Chess Championship against Kramnik and leads by 2 points.!

Second: Australia is 141 for 5 chasing 516 going into the fifth day!

(click to enlarge)
This is the typical cycle from boom to bust converted into simplified mass investor psychology.

It is instructive today as we try to determine whether we are at the bottom or is there more pain ahead and hence more opportunity?

We are not at the bottom...

In my opinion we are now in the capitulation stage of this cycle; denial, fear, desperation and panic are behind us. Too many talking heads are still forecasting better times ahead; the despondency and depression stage have obviously not been reached...

It seems to me that a prudent investor would wait till late spring 2009 before committing money to the markets. This should give enough time for market conditions to stabilize and clarify. If you are still thinking you don't want to miss the bottom then we are in the infancy of the capitulation stage.

Be patient; sit on your hands. Let the talking heads prognosticate; its your money and not theirs you will risk. Environment will become conducive for a proper risk-reward investment climate; wait for it.

Compare the above chart with the Deflation cycle chart at left:

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