Tuesday, November 27, 2012

How to Get Rich - Understand Cycles

Have you ever wondered when was the right time to buy an investment ?

Do you think you can just buy an investment and hold it forever ?

Truth is there are good times and not so good times to buy most investments !

Life is All About Cycles

Yes, life is all about cycles ! In your own life, you have many cycles. From your natural internal bio cycles such as mood and normal bodily functions to external cycles such as reaction to weather conditions and other influences in your life. Cycles are everywhere ! Have you ever thought about how many times you breath in a minute or hour ? Probably not.

Just as our own lives have cycles, so too does the average investment. Investment cycles are normally much longer than our body cycles, but they do absolutely exist. Nothing in the investment world goes up forever. Also, most things in the investment world don't go down forever. ( they can only go down to zero when the company goes bankrupt )

In most cases investments go up for a period of time and then fall back (or correct) for a period of time. Good investments will generally have an upward trend, but they still have cycles of growth and correction.

Identify Cycles Before You Invest

If you really want to get rich and stay that way, you had better study the cycles of what it is you want to invest in. You must be able to identify ahead of time where in the cycle your potential investment is. If you don't, you will risk paying too much or even worse you will risk losing a part of your investment.

As I said earlier, there are good times to buy most investments and not so good times. The trick is to know when these times are. Generally after a long period of growth is not so good a time, whereas after a long period of correction is maybe better or possibly even good.

You will find that many experienced investors do most of their buying when markets are performing poorly. After a long period of growth is when they often sell and wait for another buying opportunity. They know how to use the cycles to their advantage. The average investor does not.

Length of Cycles 

Each type of investment has a different length of cycle. Generally, the Real Estate markets have very long cycles that can last years or even decades. Stock markets have cycles that are much shorter, months or even years for instance.

Individual companies can have even shorter cycles based on seasonality or other factors that influence their sales. Every company will have different cycles.Each one must be studied separately.

What To Do

The most important thing to remember is that everything has cycles. You should learn all you can about an investment before you invest. If the time does not look right, don't be afraid to wait for a better time. Never feel pressured into buying now if it doesn't make sense. You will not lose money while you are waiting. Remember the number one investment rule. Don't lose money !

As always, I welcome your comments and suggestions for future topics.


Toby Cook said...

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