Learn to Focus on Cycles - The Most Important Thing to Invest Series 7

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“The Most Important Thing to Invest” was evaluated by Buffett as “a rare and useful book”, and he read it twice himself. This book condenses the author's own investment ideas and personal experience over the years, incorporates the opinions of several other well-known investment experts, and summarizes the most important investment issues through reverse investment. This book is of great practical significance. You must be patient when investing. If you don't want to eat hot tofu in a hurry, you should always be aware of risk prevention. I believe investors will benefit greatly after reading this book.

Learn to Focus on Cycles - The Most Important Thing to Invest Series 7

We need to master two rules: one is that most things are cyclical, and the other is that when others forget rule 1, some of the greatest profit and loss opportunities will arrive. There are ups and downs, and there are ups and downs. Some things may start progressing very fast and then slow down, and others may begin to slowly deteriorate and then take a sharp turn. The rise and fall of things is the basic principle. The economy, markets, and businesses are just as volatile. When people get involved, the results of things are variable and cyclical because people are emotional and fickle. Objective factors also play a very important role in the cycle, such as factors such as worldwide events, environmental changes, technological progress, and corporate decisions. Psychology acts on these factors to cause investors to overreact or underreact, and this determines the magnitude of cyclical fluctuations. When people are satisfied with the direction things are going and are optimistic about the future, they will spend more and less, they will borrow money to satisfy pleasure or increase potential benefits, and they are willing to pay more for current value or part of the future.

The cycle itself is self-correcting, and cycle reversals do not necessarily depend on exogenous events. The cyclical trend itself is the cause of the cycle reversal. How the credit cycle develops is that the economy has entered a period of stability, the number of providers of capital has increased, and there is little bad news. As a result, loan risk and investment risk seem to have been reduced, risk aversion has disappeared, and financial institutions have begun to expand their business — more capital has appeared in the market. Financial institutions compete for market share by reducing necessary returns (interest rate cuts), lowering credit levels, providing more capital for specific transactions, and easing credit terms. Slowly, capital providers began to provide capital for unqualified borrowers and projects. The worst loans actually occurred at the best of times. This led to capital loss. The capital cost of capital investment projects exceeded their capital gains, and ultimately led to no capital return. This is a reversal of the cycle. The enterprise is in urgent need of capital, and the borrower is unable to roll over the debt, causing the debt to default and the enterprise to go bankrupt. The economy is shrinking. The cycle is then reversed again. In order to obtain high returns, reverse investors will inject capital at this time, and the economy will slowly recover.

The cycle will never stop. Unless a completely effective market appears, people can make careful calculations without personal emotions in their decisions, so they may be able to break out of the cycle. Ignoring cycles and estimating trends is the most dangerous thing investors do. People act as if companies that do well will always get better, and investments with high performance will always rise, and vice versa. When you're faced with a deal built on the basis that “the cycle has been broken,” remember that it's just a losing bet.