Seasons and Cycles

As a money coach and writer, I love analogies between investment strategies and little daily life events. As I sit and look out my office window on this cold Texas morning, it becomes crystal clear that the tree I see is providing such an opportunity today. Leaves are continuously falling off of the tree in clumps. At first, I thought there must be a squirrel high up in the tree causing the inundation of leaves to the ground, but then I realized that it was the 25 degree temperature uncharacteristic for the Texas Hill country.

It is easy to compare the tree to the sudden scary and decimating drops in the stock market last fall, but then I feel compelled to look at the next stage, which was the strong rally off of the bottom beginning in early March. Just as the tree will be full of new leaves in April, everything moves in seasons and cycles. We know the change in the cycle lies ahead, but it is so hard to anticipate it when the tree lies barren, as did many investment portfolios. The important lesson here is to always be forward thinking with your investment strategy and actions. Always ask yourself what lies ahead.

Amazingly, during the few minutes I have written this, the tree has become almost completely barren. I look with anticipation to the next stage that will occur in a few months. While the tree leaves are undoubtedly a little more predictable, and less emotional, than moves in the financial markets, we could have looked to historical data last fall as a guide for the next potential change in investing seasons.

Now that the bear is in hiding, but nevertheless, always lurking just around the corner, typically how long does a bear market really last? Interestingly, about the same as the time for new leaves for my tree. According to Michael Zhuang of The Investment Fiduciary, the average downward cycle is four months to the bottom for the stock market.