Learning from the past while remaining flexible

This is another boomandbust market cycle in which a study of economic cycles may give an insight into the events. The global economy has gone through repeated boomandbust cycles over the past two centuries. Sometimes the cycle has been dramatic, while at other times it had less of an impact.

Economies experience periods of expansion followed by periods of contraction that sometimes turn into recessions. As the business cycle itself influences the financial markets, an understanding of markets' interaction and timing will usually give the investor a competitive edge.

In an idealised business cycle, during the mature stage of economic expansion, bonds are the first to turn downwards, due to increased inflationary pressures and resulting upward pressure on interest rates. Next, the stock market will follow, due to pressure from higher interest rates. Finally, a commodities peak comes as inflationary pressure peaks near the end of the expansion.

The economic expansion follows a contrary path, where bonds, stocks and commodities rise in sequential order. Although each cycle may not be the same, the chronological sequences between markets usually follow repetitive patterns and hence may give clues to future market directions. It always pays to look into the past and think into the future.

Last, while we can always learn from market history, we must also be flexible and adapt our style or behaviour for successful investment in the long term.

"He who knows much about others may be learned, but he who understands himself is more intelligent. He who controls others may be more powerful, but he who has mastered himself is mightier still."