Why Study Cycles?
When we apply some insight regarding cycles, we can increase our bets and place them in more aggressive investments when the odds are in our favor. We can take money off the table, and increase our defensiveness, when the odds are against us.
It is very easy to achieve average investment performance and it is quite hard to perform above average.
We can most gainfully spend our time studying three areas:
- Trying to know more than others about the “knowable,” the fundamentals of industries, companies, and securities.
- Being disciplined as to the appropriate price to pay for participation in those fundamentals.
- Understanding the investment environment we are in, and deciding how to strategically position our portfolios for it.
Investors need to calibrate between aggressive and defensiveness. When we are getting value cheap, we should be aggressive. When value is expensive, we should pull back.
Two primary types of risk:
1. The likelihood of permanent capital loss
2. Opportunity risk, the likelihood of missing out on potential gains
The ideas below are from the memo Risk Revisited Again from June 8, 2015, they might help you understand and cope with risk.
Risk is all about uncertainty. Even though many things can happen, only one will happen.