Chapter 60 [Investment Philosophy] - The Four Seasons of the Investment Market!

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[James Origin and Today] Chapter 60 - [Investment Philosophy] - The Four Seasons of the Investment Market! (08/29/2023)

One common misunderstanding among investors is that the stock market will rise only if the economy is good, and the stock market will not rise or should not rise if the economy is bad.

This is not the case. The stock market is the showcase of the economy. The stock market leads the economy because investing in the stock market is investing in the future. The misconception of ordinary investors is that they psychologically accept that the market will not rise when the economy is not good, or that the market will not rise in an era of high interest rates (for the same high interest rates, at the beginning of raising interest rates, the middle of raising interest rates, and the tail end of raising interest rates are completely different market conditions). If you do not know the position of the market and misjudge the situation, you will miss the best investment opportunities. What is worse, you will be short the market when it starts to rise.

Usually when the economy is very good and funds are sufficient, the market is relatively very optimistic, but it is not a good investment. It could be the high point of the stock market. But having said that, this high may just be a short break before the next higher point, so market highs and lows are difficult to predict.

The universe is huge and the market is huge. Investors can only adapt to the ups and downs of the market by humbly learning the operation of the universe, the alternation of the four seasons, and the cyclical laws of the market.

If you accept the market and learn the cyclical laws of the market, investing will become very simple. Making money is inevitable and easy.

I'm not teaching you to predict the market, but I understand the rules of the market and at least won't make mistakes when you shouldn't. Be brave when you should be brave.

The market rises because the company is in good health and is growing well. It can also rise because there is too much money. It is more likely because it is expected that the future will be better. If the company is in good health, it is normal for the market to rise.

Because there is a lot of money and the price rises, it is easy to create a bubble, that is, the price is much higher than the value.

A company with good health and good financial reports may also fall because too many people are optimistic about it and many people are already on board, so funds will no longer enter, and profit-taking selling pressure will result in short-term declines. Therefore, the colder the market and the more fearful the market, the more greedy and brave we should be. On the contrary, the market is too optimistic, the financial reports are too good, and we should not go to places with too many people. This is why we should be afraid of market optimism.

When the economy is not good, the central bank lowers interest rates and relaxes currency in order to revitalize the economy, resulting in an increase in the money growth rate and an increase in the market's capital momentum. Usually the economy is still not good at this time, but funds will enter the stock market. There is no other choice, because other investments are not good investments, and the economy and market are expected to improve. The market will respond in advance. This is the first stage of the market rise. Even if the economy is still in the worst state, the market has just risen (at the end of winter, the temperature will slowly warm up). (Three lows and one high. Low inflation, low interest rates, low oil prices, and high unemployment. 2009, 2020 situation).

When the economy is overheating and inflation is too high, the central bank continues to raise interest rates and the market falls. However, when the interest rate hike comes to an end, the market has already expected that the central bank will not raise interest rates again. The worst situation is over, and the central bank will cut interest rates in the future. At this time, neither the economic situation, inflation status, nor any objective environment may be favorable to the stock market. However, the worst situation is over, and the stock market may have begun to rise. This also created the environment for the first stage of the market's rise.

Then the economy gradually improves, company profits increase, and the market rises faster and more violently. This is the second stage (stock market spring).

In the third stage (stock market summer), the economy begins to overheat, mild inflation occurs, interest rates remain low, the stock market rises more than in the past, and stock prices exceed the company's growth value.

In the fourth stage (stock market winter), the stock market falls, inflation rises, interest rates begin to rise, and the economy declines. The market fell sharply, and spring is not far away (three highs and one low: high inflation, high interest rates, high oil prices, and low unemployment. Such as the situation at the beginning of 2022.).

This is the four-season cycle of spring, summer, autumn and winter in the stock market and economy. We are now (mid-2023) at the beginning of the first phase (late winter and early spring) (the worst situation has passed, and it is expected to be better in the future). It is a golden period for investment, much like 2009. Although many people are still dubious, the market always grows in dubiousness, so enjoy the long rising days in the future!

It is most important to understand how the market operates in four seasons. Looking at the market every day and guessing whether it will rise or fall tomorrow is as ignorant as looking at today's weather to predict whether it will rain or snow tomorrow. Just like a farmer pulling up seedlings every day, of course he won't survive.

Some people even predict that the first snow of the year will fall tomorrow in the summer. This is a common problem among most investors and analysts. Market operations are company performance, human growth and the flow of large amounts of money, which cannot be changed by saliva.

Anyone who tries to predict the market is overconfident.

Because market speculators and analysts are so wrong (Buffett said: The error is bigger than that of a child), we can easily make money in the market (Buffett said that he is making money from stupid speculators in the market).