We all know that the cashmere coats are going on that last clearance rack as soon as we head into spring. You know, the fun rack with the multiple or red stickers. In the world of shopping, market pricing is tied to the seasons or trends.
In the world of investing, market prices are usually tied to trends in the economy.
Many investment courses don’t expand on market cycles due to the potential complexity of the topic, but I think that’s really holding back on one of the most basic financial principles that can have a potent and profitable effect for any investment plan.
Value is value, and money is money. So, don’t we want to get the most value for our money, whether we are using it for that cashmere coat or for an investment in the stock market, the real estate market or any other market for that matter? I know that I want good value for my money.
What I’ve learned is that when I’ve bought at good value, it has been a profitable investment. And when I have bought without considering value, it’s usually been to the detriment of my investment plan.
While my rustic drawing may look like the Colorado Mountains that I skied last month, it’s actually a simple depiction of the stock market. A picture paints a thousand words, and so does a stock chart. How simple is this? Yet it’s an incredibly powerful little tool for any smart investor!
What’s it saying? The first mountain peak is the stock market in 2000. Then the market went down. The second mountain peak is the market in 2007. Then the market went down. The peak from the third move up is the market in March of 2013.
When the market reaches the previous peaks it has pretty predictable behavior. It will often hang out in the area at the top of the mountain for a while deciding whether it’s going to literally break through the last peak, or head back down. Then it will go one direction or another.
What does a savvy rich financial woman do with this knowledge?
- Know where the long term cycle is when you buy an investment.
- Be more cautious at the top of the mountains.
- Ask if taking some investing profits at the top of a mountain makes sense.
- Work with financial advisers who factor this crucial element into managing your money.
This same principle applies to all financial markets, including real estate; markets tend to move in trends. Sure, hindsight is always 20-20, but you can see how helpful a visual of previous market moves can provide valuable insight that can easily help guide investors.
When buying that cashmere coat in September, you know you’re paying full price, and the prices are almost certain to fall. While they probably won’t go up, prices just might go up just ahead of Christmas.
But, we all know that the real value will be in March when coats are on clearance. The trend for coats, in other words, is not perfectly predictable, but a very useful guide for a girl with limited funds who wants to buy a cashmere coat with less money. Financial markets have probable trends as well.
This isn’t something that an investor needs to check every day.
It’s not day trading cycles that we’re looking at here. As you can see, these are multiple year long term investment cycles that can have a huge impact on your investment plan simply by being aware of them when you invest your sweet money.