Howard Marks proposed in the book "Cycles" that the most important thing for us in investing is to be aware of the existence of cycles, and there is more than one cycle, including the following:

Economic cycle

Government regulation counter-cyclical

Corporate profit cycle

Investor psychology and emotional pendulum

Risk attitude cycle

Credit cycle

Distressed debt cycle

Real estate cycle

Market cycle

So what exactly causes the phenomenon of cycle? , the author gives the following factors.

· Macro environment

· Corporate growth

· Lending mindset

· Investment popularity

· Investor Psychology

The long-term trend formed by the interweaving of these cycles is a slowly rising curve. But the author said that he has been in the market for 40 years. Although the overall stock market is rising, the process during this period was difficult and unhappy. Therefore, many people want to pursue the Holy Grail-style trading strategy, that is, a strategy that is comfortable after buying may not exist at all.

We can easily see from historical data that one of the biggest characteristics of the cycle is that it is easy to go too far. This is caused by human nature and is caused by the excessive swing of the investor's psychological and emotional pendulum mentioned in the author's book. result. Understanding and being wary of market psychology and emotions going too far is an entry-level requirement for investors. Only in this way can people avoid the harm caused by the extremes of cyclical fluctuations and hope to make profits from them.

Excellent investors can realize this and work hard to go against everyone else's path and make contrarian investments. As Buffett famously said: Be fearful when others are greedy, and be greedy when others are fearful.

As investors, our job is very simple, which is to deal with asset prices. One is to evaluate the current valuation level of asset prices, the other is to judge how asset prices will change in the future, and the third is to make decisions. Whether, when and how much to invest. Asset prices are mainly affected by developments in two aspects: fundamentals and psychological aspects.

Fundamentals: Simplified into two major financial indicators - corporate earnings and cash flow, as well as future expectations for both. Corporate earnings and cash flow are affected by many factors, including economic trends, corporate profitability and future capital availability. Psychological aspect: How investors feel about fundamental factors and how they evaluate these fundamentals, especially the investor's optimism and attitude towards risk.

The most important thing to understand and observe is the psychological aspect. The author gives the common psychological states during the rise and fall respectively. To recognize these common psychological characteristics, you need to always put yourself in the third place. Look at it from the perspective of a reader, because you are also part of this group, and what you think is what most people think.

In the final stage of the market rise, the following characteristics will appear:

·Economic growth and economic data are all positive;

·Corporate profit growth, higher than expected ;

·The media publishes only good news;

·The securities market strengthens;

·Investors become more confident and optimistic;

·Everyone believes that risks are very rare, and even if there are risks, they are benign and will not cause serious harm;

·Investors believe that taking high risks is the only way to make money, and high risks can Bring high returns;

·Greed drives investor behavior;·Demand for investment opportunities far exceeds supply;

·Asset prices rise, exceeding intrinsic value;

·The door to the capital market is open, it is easy to issue securities for financing, and it is easy to raise debt on a rolling basis;

·Defaults are rare;

·Investors’ doubts The degree of trust drops to a low point, and the level of trust rises to a high point, which means that risky transactions can also be achieved;

·No one can imagine that things will go wrong, and no beneficial developments and changes will appear to be possible. possible, all good things are possible;

·Everyone takes it for granted that things will always get better;·Investors ignore the possibility of losses and only worry about missing opportunities;

·No one can think of any reason to sell, and no one is forced to sell;

·The number of people buying exceeds the number of people selling; ·The market fell slightly, and investors not only Not angry, but very happy, just buy at the dip;

·The stock price hits a new high;·The media cheers to celebrate the stock price hitting a new high;

·Investors become blindly excited, Carefree;

·People who hold stocks are proud of themselves - How could I be so smart, I bought in time to catch up with the rise, and made so much in one fell swoop? While they were happy, they May buy more;

·Those who have been standing by and only dared to watch but not buy, watched their friends make a fortune and regretted it to death. In the end, they surrendered and followed the trend. Buy;

·Expected returns drop to lows, or even negative;

·Risk rises to highs;

·Investors should forget their mistakes Opportunities, you should only worry about losses;

·It’s time to be very cautious.

In the final stage of market decline, the following characteristics will appear:

·Economic growth slows down, and reported data are all unfavorable;

·Corporate profits remain flat Or fall, and lower than expected;

·The media reports are all bad news;

·The securities market is weak;

·Investors become worried and Frustration;

·Everyone feels that there are risks everywhere;

·Investors feel that there is no benefit at all from taking risks, it will not make them make money, it will only make them lose money;

·Fear dominates investor psychology;

·The demand for securities in the market is lower than the supply;

·Asset prices fall below their intrinsic value;< /p>

·The door to the capital market slammed shut. It is very difficult to raise funds through the issuance of securities, and it is also very difficult to raise funds through the rolling debt maturity; ·The debt default rate has soared;

· Investors' skepticism has reached a high point and trust levels have dropped to a low point, which means that only very safe transactions can be reached, and even no transactions can be reached;

·No one considers that the situation may improve, Any negative outcome is possible, and everything bad is possible;

·Everyone takes it for granted that the situation will only get worse;

·Investors ignore The possibility of making money, the only worry is losing money;

·No one can think of a reason worth buying;

·The number of people selling exceeds the number of people buying. ;

·"Don't catch the falling knife" replaces "Buy the dip";

·Prices hit new lows;·Media focuses on this depressing trend;< /p>

·Investors became frustrated and panicked;

·Investors holding securities felt stupid and disillusioned. Only after they lost money did they realize that they had done this in the first place. In fact, they don’t really understand the reasons they think about when investing;

·Those who have always refused to follow the trend and buy when the price rises, especially those who sold their stocks, feel that their original judgments have been corrected The market has proven that it was too wise not to buy;

·Those who originally held the stocks gave up and sold them at discouraging prices. As a result, the situation was worsened and the stock price spiraled further down;

·After the crash, the expected rate of return contained in the stock price is as high as the sky;

·The risk is very low;

·Investors should forget the risk of losing money , you should only worry about missing the opportunity to make money;

·The time for offensive investment has arrived.

Interestingly, this series of descriptions exactly echoes this picture: