Cycle is a natural law, with four seasons alternating, sunrise and sunset.

The economy also has cycles, and it is human nature behind recovery, prosperity, recession and depression.

As long as there are people, there will be cycles, so believe in cycles when investing.

Of course, everyone is talking about cycles. What is the cycle? How to analyze it? How to deal with it?

In order to get rid of the fog and grasp the essence, we review Howard Marx's classic book Cycle and extract the essence of this book, hoping to give you some inspiration and help you better understand the past cycle law, see clearly the current cycle position and see through the future cycle trend.

Buffett said: "I will open the email and read Howard Marx's memo as soon as possible. I can always learn a lot from it, especially his books. "

Part 1: three laws of periodicity

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Periodic rule 1: If you don't follow a straight line, you must follow a curve. As the saying goes, the future is bright and the road is tortuous. The long-term trend is like a big magnet, which has the attraction of mean regression, so there is a big drop after the big rise and a big rise after the big drop. However, once you move towards the mean, you will have the inertia of deviating from the mean, either greed or fear.

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Rule number two: different, only similar. There will be ups and downs in the cycle, but the amplitude, time and speed will not be the same, because the world is random. Just like the bull-bear cycle in the history of A-shares, it will not be repeated simply, but it always follows the same rhythm. Therefore, the key to identifying the cycle is to understand the pattern, not the details, and the key is to know where it is.

03

Cycle rule 3: walk less in the middle and walk more. The pendulum may swing to the center, but the stay time is very short. In fact, it is not a normal phenomenon that the performance of the stock market meets the normal level, that is, normal is abnormal. Taking the experience of American stock market as an example, the proportion of "off-level" years far exceeds that of "normal" years.

Part II: Three periods.

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The first cycle: fundamental cycle. The economic cycle is long and short, and the core influencing factors of the long cycle are population growth and scientific and technological progress, but these are slow variables, and it takes 10 years to perceive the big changes. The short-term cycle will fluctuate around the long-term trend, thus forming "recovery-prosperity-recession-depression", but it will always follow the footsteps of the long-term trend. The government's counter-cyclical adjustment is to smooth out economic fluctuations with the government's hands. The first hand is the central bank, with the core goal of promoting employment and controlling inflation, controlling the ebb and flow of liquidity; On the other hand, the central government manages demand through financial efforts. The profit cycle of an enterprise is complex, which originates from the economy, starts from the industry and ends with the individual.

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The second cycle: psychological cycle. Investors' psychology is also like a pendulum, from one extreme to the other, most of the time they go to extremes, and rarely stay in the center, the most rational and peaceful state. After all, people's emotions are feelings about the color of events, which will strengthen themselves and hypnotize themselves.

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The third cycle, the market cycle. The market cycle is most often called the stock market cycle, which is a combination of all cycles, plus other random effects, forming the stock market fluctuation cycle. Simply put, fundamentals and psychological aspects will affect market scenarios, which in turn will affect fundamentals and psychological aspects.

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A classic "three stages" theory of bull market and bear market is concise, but full of wisdom. People in the first stage are courageous and knowledgeable; In the second stage, people follow suit; People in the third stage surrender themselves, not only losing money, but also being punished. As Buffett said, "Smart people do it first, fools do it later."

Part III: Response and utilization of circulation.

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The purpose of understanding the cycle is to handle and make good use of it. The first step is to be knowledgeable. The core is to understand the position of the market in the cycle and measure whether the market temperature is too hot or too cold. The second step is to have the courage to be afraid when others are greedy and greedy when others are afraid. The third step is to have capital, including emotional capital, which can resist chasing up and cutting meat; And monetary capital, and can make up positions when necessary.

09

What dimensions can we pay attention to when measuring market temperature? The following "Market Evaluation Guide" table gives many dimensions to pay attention to. The first is to quantitatively evaluate the valuation level of market prices. If we do not deviate from the historical normal level, we will not go too far at the extreme value; The other is qualitative analysis, that is, seeing what is happening around you clearly and making decisions instead of guessing.

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To see through the future cycle trend is to grasp the fuzziness and accuracy. No matter where you are in the cycle, you will be affected by the trend. If it is at the high point of the cycle, it is more likely to be repaired; Conversely, if it is at the low point of the cycle, it is more likely to be repaired. Although this does not mean that the cyclical trend will certainly develop in this way, it will be safer to grasp vagueness and accuracy for a long time.

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Success has cycles, and nothing lasts forever. This tells us that no investment method, investment rule or investment process can always outperform the market. First, most investment methods are effective at a certain stage of the cycle, but they may not be effective in other environments. Second, past success will make future success impossible. Therefore, we should fear the market and learn for life.