Of market cycles, recessions & rebounds: How to invest

 

Recently, whilst explaining something to a friend, I remarked that markets are simply what they are! I was referring to the fact that no matter how sophisticated and institutionalized financial markets are, they are, at the very core, a place of exchange; and that for markets to thrive as they do, there must always be the basic elements of varied human expectations and behaviours. Furthermore, at every point of trade and exchange, someone believes differently about the product they are buying or selling and when markets swing as they often do, it is on the premise of human overreactions in either direction.

I went on to state that what intrigues me about this human behaviour conundrum is that year in, year out, through observing several economic seasons and market cycles, most investors tend to have the same reactions and act in the same direction to the same set of economic variables – rushing out when everyone is rushing out and rushing in when everyone is rushing in.

The age-long advice corroborated by several seasoned investors that one should never panic when the market does seems to get lost on most of us and the usual herd mentality from the fear of losing more portfolio value (from a crash) or missing out (from a rebound) continues to take precedence.

As we prepare for what could be light or major corrections across global markets, investors must look critically and less sentimentally in their considerations in order to take the best advantage of the trends, especially where more patient, long-term capital is accessible and to consider their investing criteria in a potential downturn as they do when the economy is growing.

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