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Mastering the Market Cycle: Getting the Odds on Your Side

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Doing this will, obviously enough, increase the chances that your portfolio will gain value in the future. Superior investors are people who have a better sense for what tickets are in the bowl, and thus for whether it’s worth participating in the lottery. We have two classes of forecasters: those who don’t know — and those who don’t know they don’t know. Since risk (that is, uncertainty with regard to future developments, and the possibility of bad outcomes) is the primary source of the challenge in investing, the ability to understand, assess and deal with risk is the mark of the superior investor and an essential—I’m tempted to say the essential—requirement for investment success.

Changing attitudes towards risk leads investors to be too risk-averse or too risk-tolerant at times. The swings follow a generic pattern of: a) recovery from the lows, b) rise past the midpoint to (extreme) highs, c) the new high, d) downward correction, e) fall past the midpoint to the low, f) the new low, g) recovery from the low, and h) back past the midpoint to another high. Most raging bull markets are abetted by an upsurge in the willingness to provide capital, usually imprudently. The author’s polished, precise English and long experience combine to leave you in no doubt about the message; cycles matter and woe unto you if you don’t take them seriously. Well, he’s someone whose job is to invest in a range of assets, comprising a package known as a portfolio, which he hopes will increase in value as the years pass.Operating Leverage: Most businesses have a combination of fixed and variable costs, meaning costs will fluctuate.

By the end of these blinks, you should have a feel for how they work and, therefore, be that much closer to becoming a superior investor. Can’t argue with the chap, he’s a serious thinker on the subject but I realised early on I didn’t want to argue with him or hear anymore on economic theory.Despite being one of the most accomplished investors of our age, Marks has risen above the ranks by following seemingly simple rules, detailed in this book with his usual proficiency, unique insight and, eminently, in plain English. People who are successful run the risk of overlooking the fact that they were lucky, or that they had help from others. Stages of a Bear Market: 1) when a few people believe things won’t stay better forever, 2) when most people see things are getting worse, 3) when everyone believes things can only get worse. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present. Corporate management is not immune to the swings from risk-averse to risk-tolerant either (see the financial crisis).

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