cycle
Know where you stand in the cycle
The rule
You cannot predict the cycle. But you can read roughly where you stand in it, and adjust a little.
Where it flips
Reading the cycle can turn into hidden market timing, if you start acting as if you know the exact turn. The useful version adjusts your tilt a little at the edges. The harmful version jumps all the way out or all the way in on a forecast.
Marks says timing the exact top or bottom is a fool's game. Still, you can judge whether hope, easy loans, and prices are stretched high or beaten down. Knowing which part of the cycle you are in lets you tilt your exposure a little. It does not mean swinging your whole position on a called turn. The move is to lean, not to bet the timing.
A worked example
A reader notices Indian retail money flows, IPO frenzy, and loan growth all running hot at once. Instead of predicting a crash, they trim borrowing and raise their cash buffer a notch. They stay invested, but less exposed. [illustrative]
How to spot it
- ·high spirits and easy loans together
- ·prices far from their own past levels
- ·sureness that this is the top or bottom
- ·position sized as a bet on timing
Howard Marks · Mastering the Market Cycle