[Summary]
An inflation cycle is a flow in which rising prices affect corporate profits and household budgets.
What is more likely to fail in an inflationary cycle is not the lack of knowledge itself, but the fact that one hastily made a decision and later justifies it.
When making an actual investment, you first need to identify companies that have the ability to pass on price. However, we cannot overlook the fact that it is easy to confuse increased sales with increased profits.
In this article, we will organize the inflation cycle not as "knowledge" but as a step to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First of all, we need to differentiate based on the inflation cycle.
When looking at the inflation cycle, first determine what you want to judge. The information you need will change depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. Inflation cycles are not the only factor in determining decisions. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Situations where it is easy to fail in the inflation cycle
If we look at the inflation cycle as a pattern of failure, we must first make narrow assumptions. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
If you check the following points, things will be much more organized.
| Axis to check | What we see in the inflation cycle |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
It is not only a lack of knowledge that stumbles in the inflation cycle. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Don't decide to buy or sell the moment you see an inflation cycle.
- Don't mix your own holding period with a time frame that fits the inflation cycle.
- Don't increase your position to recoup your losses
- Don't make a decision just based on SNS or rankings.
The important thing here is not to settle on just the inflation cycle as the correct answer. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using the inflation cycle as a basis for actual judgment, check at least these five points.
- Can you explain in one sentence the purpose of looking at the inflation cycle?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of checking for inflation cycles is not to act faster, but to reduce unnecessary errors in judgment.
Summary
Inflation cycles are a material for organizing investment decisions. Even if you read it as a failure pattern, treating it as a standalone buy/sell signal will lead to poor judgment.
The points to keep in mind are as follows.
- Decide first the purpose of looking at the inflation cycle
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. It is realistic to treat the inflation cycle as a tool to pause before buying or selling, rather than a word that forces you to make hasty decisions.