The power of understanding economic cycles to inform financial decisions
Despite regular academic assurances that economic and market cycles can be mitigated, managed or will even stop happening "from here on out", the world is still beset by financial panics. Most recently, we navigated the financial crisis in 2007-08 and the emerging markets collapse, which reached a low point in early 2016. Howard Marks, co-founder of Oaktree Capital Management in the US, says: "In the world of investing, nothing is as dependable as cycles. "Fundamentals, psychology, prices and returns will rise and fall, presenting opportunities to make mistakes or to profit from the mistakes of others. They are the givens." In fields such as the natural sciences or medicine, progress is cumulative: it is built on the foundation of an historic body of work. This may occasionally result in prior beliefs being refuted or refined. However, the vast majority of work stands to guide and support future innovations. Progress in the fields of finance and economics appears to be cyclical, rat...
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