Understanding Economic, Industry, Capacity, And Product Cycles, And Their Impact On Investing

One of the most important investment concepts to understand is the existence of Economic, Industry, Capacity, and Product Cycles; how they work, and the impact they have on investment returns. Investors who understand these cycles and have the discipline to incorporate the learnings into routine investment decisions are likely to fare far better than those who do not.

Economic Cycle

Economic Cycle (see image below) is a widely known but one of the most neglected concepts when it comes to investing. Setting aside countercyclical investments, most investments will deliver the highest ROI if they are bought early in the expansion phase of the Economic Cycle and sold near the peak of the Economic Cycle. As the saying goes, “a rising tide lifts all boats”. It is better to invest when the tide is going up than when the tide is going down. Investing near the peak can be a wealth destroyer or at the minimum a big ROI inhibitor.

Of course, it is nearly impossible to time the bottom and top of an …