Cycles & Phases

Magnitude, Duration & Slope Need Evaluation

Dangerous characteristics include:

Micro-management by too many amateurs and journalists.

Micro-management will likely lead to strategic mistakes.

The gold rush to the Internet stocks has followed the traditional cyclic phase swings similar to that followed by biotech stocks in the early 1980s and 2000, oils stocks in the late 1970s, tech stocks (radio, auto, refrigeration, etc.) in the 1920s, and so many more fad groups. Often these fad groups have actual valid substance. It is the market players -- speculators and gamblers -- that shove financial instruments (stocks, options and bonds) -- which are only loosely connected with varying elasticity to the underlying company -- beyond realistic valuations. That hyperbolic shove eventually brings about the need for massive and painful corrections.

1.) A strong upsurge shoved by an irrational emotion and lack of understanding (1997-1998);

2.) Followed by the letdown (2000);

3.) Followed by a more rational, serious, steadily increased broadening of users searching for valuable content.

That valuable content is what smart, long-term investors and builders are planning in preparation for the Next Phase.

The Cycle & Its Phases Have Power Beyond Ignorance and Arrogance

The macro economic cycle is ongoing. It started centuries ago and continues with short and long periods deviating from a perceived norm. These periods of deviation are phases.

The economic cycle is composed of phases. A phase is a period of any duration that takes economic activity in a direction off the norm until it returns to the old or a newly perceived norm. For example, the price of gasoline may move up and stay inordinately high for some period and then return to a price perceived to be close to a reasonable price, the norm. This phase is marked from the start of the price rise to the time when the price comes down to the newly perceived norm.

It is important to view the economic cycle from the macro perspective when attempting to predict the start or end of phases. For example, predicting a turn, or end of a phase, in the stock market can be incorrectly influenced if the observer ignores a longer trend and perceives the phase ending early. That is why people buy too early in a bear market and sell too early in a bull market.

See also: Corrections

The investment axiom that is always valid: Caveat Emptor

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