The "most important thing to invest in" cycle

19 Jan 2023

What is a cycle?

Certain patterns and events happen repeatedly and affect our lives. For example, winter is hotter than summer, daylight is brighter than night, the four seasons alternate, and the 24-hour time is regular. The economic market also follows this law, and this model is called a cycle.

The investment cycle consists of a downward phase B to an upward phase A.

Why is there a cycle in the investment market?

Few things develop in a straight line, progress and retreat, prosperity and decline, and sometimes they start well and end badly. The cycle of the world is due to the participation of human beings, and the economic field is variable due to the participation of human beings. People are changeable and unstable. When you are satisfied, you spend more and save less, otherwise you save more and spend less. less.

Why pay attention to cycles? What are the signals at different stages of the cycle? how to respond?

Pay attention to the cycle, we will earn more income one step ahead, study the origin and impact of past cycles or corporate cycles, and be alert to the next trend of the cycle, so that we can prepare in advance and do not need to face changes in the investment environment When we work hard from scratch to make coping decisions, when we see the cycle clearly, let us see the general trend more clearly, and it is not easy to be blinded by the turbulent world in front of us.

The signals at different stages of the cycle are-look at emotions, risk attitudes, and look at prices.

Contempt will bring risks, fear will bring fear to invest, along with investor sentiment and attitudes towards risks, prices will also change.

How to deal with it: Identify the different stages of the cycle. These can be judged by emotional risk prices. Different stages will make different mistakes. Investors who are good at thinking are always unknown and earn stable returns in good years. Bad years bear lower losses, because they know that greed, jealousy and conceit are a natural deficiency of people, so they often reflect on themselves.

Humility, prudence, and discernible risk control are the best criteria for creating long-term wealth.

Protect against negative influences

At different stages of the cycle, what are the psychological factors that influence investors' decision-making?

Greed, fear, self-deception, conformity, jealousy, arrogance.

How should investors treat these psychological activities that motivate them to make stupid investments?

First, know them. This is the first step for us to win. Second, we must recognize the reality and think that people who are immune to the above factors will put themselves in a dangerous situation.

How to deal with the negative influence caused by different psychological factors at different stages of the cycle?

Thinking investors will work hard in obscurity, earn stable returns in good years, and bear lower losses in bad years. They avoid high-risk behaviors because they are very aware of their shortcomings and often introspect. It is the best rule for creating long-term wealth, but it will not bring too much self-satisfaction in the short term.

An impressive sentence

The influence of the group and the expectation of victory-these factors are almost universal, they have a profound impact on most investors and the market, and the result is mistakes-frequent and common mistakes that occur repeatedly.

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