[Summary]
A business cycle is a cycle of economic expansion and recession.
What is most likely to cause failure in a business cycle is not the lack of knowledge itself, but the fact that one hastily made a decision and later justifies it.
When it comes to actual investing, we first start by distinguishing between economically sensitive stocks and defensive stocks. However, we cannot overlook the fact that it is easy to notice changes in economic conditions later.
In this article, we will organize business cycles not as "knowledge" but as steps to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First, classify by business cycle.
When looking at business cycles, 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. Economic 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 business cycles are prone to failure
If we look at the business 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 to see in the business 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's not just a lack of knowledge that causes us to stumble during the business 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 the business cycle.
- Do not mix your own holding period with a time frame that matches the business 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 rely solely on the business 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 business cycles as a basis for making decisions, check at least these five points.
- Can you explain in one sentence the purpose of looking at business cycles?
- 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 business cycles is not to act faster, but to reduce unnecessary errors in judgment.
Summary
Business 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 business 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 business cycles as a tool to pause before buying or selling, rather than a word that forces you to make hasty decisions.