History has taught us that economies go through cycles. Sometimes things are good; other times things are bad.
The easiest cycle to study over time is the real estate market. It goes up and down typically over a 5-6 year period. In a normally boring market, the real estate world grows at about 4% annually. That is a great return on an investment, considering that not only do you get the equity gain, but you get the use of the property either to live in, but you could also rent it out to others for cashflow. My strategy over 20 years has been to use the cashflow of rent to pay off mortgages to eventually have a portfolio of freehold real estate that can generate rent unencumbered by expenses. It is a very long game, and I've seen the market go way up and way down.
The universe has this amazing way to find balance. It has been studied and documented for centuries. Yin & Yang, positive and negative, plus & minus, etc. The resonance of the cycle defines audio and much of our lives - often invisible and all around us. In the case of economics, you can attempt to make a lot of money by timing the market. That is you buy low and sell high.
This approach is the basis of contrarian economic thinking and is the most difficult frequency to tune your mental radio to. This is because you are literally battling the human psychology to do the polar opposite of what feels natural.
One of the things we all share in common is our innate, subconscious response. If we see danger, we avoid. If we see potential conflict, we defend. If we see opportunity, we engage. It is how we, as a species, have survived against the laws of the jungle. We have been pre-programmed to hunt and acquire security for our families. So if there are opportunities to acquire fish that we hear about from others, we are likely to go and seek it out. Any "fast track" achieving sustenance is worth pursuing. If the opportunity is short-lived, and we didn't engage, we have this FOMO (Fear of Missing Out) that teaches us that the next time an opportunity presents itself, we should engage without hesitation.
This natural behavior creates the cycles. When the stock market is up, there is confidence in the market and more and more people engage. When the stock market is down, and everyone is exiting the falling prices, we disengage. This is based on the flow of information. The more of us that hear the information, the more of us that react accordingly.
In the earlier 20th century, this information was shared by newspaper. Eventually that turned to radio and then television. The news presenters in these different distribution media gave the information that was then discussed at the barber shop, the bars, around the water coolers at work, some random conversation with a stranger on a bus, etc. Information was disseminated peer to peer, with the exception of mass media. The mass media controlled the message, so if the TV news said that the markets were up, more people were likely to engage with the markets. If they were down, more would exit.
Then along came the Internet and we all started to live in an instant information society. First, it was "pull media" which simply refers to the fact that if you wanted to get information, you had to do something. That meant look up a search engine, or open a browser and read a blog. Then it became "push media" in which we carried devices that would alert us pro-actively to things. Our phones buzzed in our pockets, we followed social media that allowed us to tell it our interests and it would align that to content that was being created. We didn't have to go search for anything - it did that for us. It effectively took our wants and needs and turned that into a conversation that the technology thought was aligned. Often it wasn't, and it was an implied conversation based on the motive of the delivery platform to deliver content that they would make money from (e.g. advertising, masked as content). But this is what we accepted as the norm.
In this world of fast moving information, pro-active notifications, etc. it is not surprising to me that our innate psychological needs of avoiding FOMO when times are economically good, drives markets to all time highs. And in the same vein, when there is a risk of collapse, the path to exit positions in markets are more accessible and the information more available that the overloaded markets can be just as fickle if the mass population wants to get out.
Hence the boom & bust cycles we have experienced post Internet are probably here to stay.
I speak with a lot of younger folk than me. I'm in my mid 50s, so I've been around the block many times. I don't know everything. I'm learning more every day. But I've seen at least half a dozen market cycles play out, in my working life. Some of those have had massive effect on me. The crypto market in 2017 made me very wealthy. The real estate market crash in 2008, made me poor. I've had successful and failed business ventures. I've been rich and I've been poor.
Many of the people that I speak with are younger than me. Often they were born around or even after the Internet. Life before the Internet is some historical discussion that makes no sense in a world of Instagram. But it allowed us to better understand human psychology because when you are looking face to face with someone, they can't hid behind a keyboard or an avatar. They are who they are. You learn a lot about people by engaging with people.
One thing that really concerns me right now is a lack of association with the world in recession. Yet every indicator would suggest that we are in the waning period of the boom market.
The easiest measurement is the US stock market, particularly the Dow Jones Industrial Average (DJIA). This simple indicator represents to me a faith in the market. It goes up and it goes down. 10 years ago, it was as low as 6,000 points at the bottom of the 2008 financial crash. Today it is over 25,000.
That is insane based on history. The level of growth is so aggressive that the universe would tell us that a correction is overdue. And I believe it is. I think that most economists agree.
Just as this balance will come, many will lose their net wealth if they attempt to time the market at a time when it is at all time highs. The same is true of the price of any other asset. If you buy a house at the peak of the market, and then have to sell, you will lose a lot of money. If you bought Bitcoin at the end of 2017 and now have to sell, you will lose at least half of your money. If the goal was to gain, you failed.
You can't avoid the reality of the universe and its natural balancing process. If you attempt to thwart it, I can tell you one thing - it is bigger than you are. Like a surfer, you can't fight against a wave. You have to learn to ride it. Learn to co-exist with it and then take from it the positive that you are seeking.
But most people I meet are far from prepared for the negative balancing that will take place.
Age & youth comes with it the sense of invincibility. The teenager that thinks they can never die. They can take risks that will give them a "rush" and that there is no downside. Yet we probably all know of someone who met their demise because of this. Maybe that ended their life with risk taking. Maybe they were permanently disfigured or disabled from it.
I have friends that suffered greatly in car accidents and to this day are permanently disabled. They are my age. They spent decades living in wheelchairs, living with the aftermath of head injuries, etc. All because they thought they were invincible. We probably all had some life experiences with this where we narrowly missed our own demise for the rush.
When it comes to money, the risks are the same. At least with money, you can earn it back (assuming you have the time left in your life to do it). If you train yourself in how to earn and save, you are more likely able to sustain yourself through the downsides of market cycles.
But the greatest inexperience is to look at the external factors that create and time the market cycles. Like a surfer learns how to read a wave in order to be best prepared to ride it. You have to be willing to observe and learn from the markets BEFORE you attempt to engage with them. It is like grabbing a lion by the tail. You better first have studied lion taming or be doomed before you touch the animal.
I get asked for advice from a lot of people. I'm grateful that they think I have answers they don't yet have. It is a nice positive ego reinforcement for me. But I really don't have the answers. What I do have is a life of observations of what I've seen in the universe - and that is a very small pinhole view of it. I've lived in different countries, I've been lucky enough to be involved in ventures that turned into multi-billion dollar corporations. I've seen things. But of all of this, I can only tell stories of my own observations.
One thing is common though. If you think you can go through life without some adverse events, you are fooling yourself. If you think that you will only ever live in a market that is in boom, you are destined for failure. If you don't take personal responsibility for yourself and your family, and train accordingly, then you will be destroyed. And if you give up control of your world to a third party (e.g. government, employer, benefactor, etc.) you will never learn anything other than what that third party wants you to learn. And that sheltered existence will lead you to being a victim to the external factors that define your boundaries. You will be destroyed by the very same government that you put your faith in to keep you safe, fed and healthy. People take advantage of the weak. It is in our nature and to dismiss this, is pure ignorance and a path to destruction.
Unfortunately I can tell you that life isn't learned through a book or a YouTube video course. It is learned by living it. It is learned by losing fear and engaging with it. It is learned by understanding other people who define opportunities. And with that knowledge, you have something to give back. After you have mastered it for yourself, and for your family, then you can teach from real experience rather than (like the failed education system of the western world) you are simply parroting what the curriculum tells you.
Preppers are interesting people. They tend to be obsessed with the downside. They spend their life in preparation for SHTF (Shit hits the fan). When the day comes that the power is turned off. That people turn on people. That weapons are critical and that they must stockpile them. That bunkers are worthy houses. That food in a can is the essence of survival.
For me, that is a bit extreme. I don't want to live 99.9999% of my life for the 0.0001% chance of total destruction. I'll take my chances that we will not end up living like we are in an episode of the Walking Dead.
But they are well trained. The training alone is worthy. Being prepared is the key to not only survival in the downside of a market, but also to see the opportunities of the downside. It is true - the worthy are those that can make money in the bear markets. Face it - we have been living in a bull market for 10 years, and most of those that are under the age of 35, have little or no experience of how to live in a bear market. Whether that be in crypto, stocks, real estate, employment, sales, etc. It is really stupid to think that you are the sage of information if all you have is 10 years or less of experience and you've never been through the bear market.
If you are watching videos or listening to podcasts of anyone that can't give you a true story of both the good and bad times of something, then it is fiction. Sorry to anyone that is out there producing content that falls into these traps, but we must all be aware that those with the least amount of experience will have the least informational value to offer.
Remember this?
Nuff said.
This is not meant to be a negative message. It is more of a warning that markets have up and down cycles, and you should be realistic in determining the risks of a cycle and where something is in that cycle. If you don't understand the surrounding messages that are often presented from those with a vested interest in influencing your behavior, particularly with you parting ways with money, then you are doomed to fall victim to it.
At the same time, cycles have ups and downs. If all you focus on is fear, uncertainty and doubt, then you will never see the gains. The best place to be is contrarian to the mainstream. That is when everyone says the economy is great, behave like it is the great depression. Save, stock pile and train for the upcoming bad times.
When the times are bad, you acquire. That is when you find the bargains. You have to have cash on hand for this. Your training in the good times to save, and not go into long term debt that will last longer than the cycles, will return well. You can find bargains when others fell prey to the very same external influences and FOMO. That is when you can best win.
This takes a lot of courage and discipline. Discipline to know when to leave the field and sit on the bench. A willingness to attempt to time the market. And the patience to know that cycles take upwards of a decade to play out.
For all of my FIRE (Financial Independence Retire Early) friends, take heed that unless you have lived through a life with accidents, death, divorce, layoffs, recessions & depressions, etc. you don't know shit. Yes, I know that is a strong thing to say, but it is part of your awakening. If you have made some really major life choices to give up your careers, etc. when you have never lived through a down market (and I mean a real one - not some small correction), then you are going to be a victim to life here. You can't teach anyone (including those that love you and rely on you) without having first lived it, unless you want to live a life being institutionalized and protected by a third party that is likely to be your captor rather than your savior.
The buck stops on your desk. Now what you do with that buck, can be the difference between the poor and the millionaire.
