[Summary]
The advantage of knowing the business cycle is that it does not guarantee profits, but it makes it easier to organize the materials you need to look at.
The advantage of knowing the business cycle is that it does not guarantee profits, but it makes it easier to organize the materials you need to look at.
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 the benefits of knowing about 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, let's divide by the merits of knowing the business cycle.
When looking at the benefits of knowing 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. The benefit of knowing about business cycles is not the only factor in making 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.
Don't overestimate the benefits of knowing about business cycles.
If you want to see the benefits of knowing business cycles, first of all, 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 with the benefits of knowing 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
The advantage of knowing about business cycles is not only when you lack knowledge. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Decide first what you will be able to see with the benefit of knowing the business cycle.
- Differentiate between conditions that bring about benefits and conditions that do not.
- When expectations are too high, test with a small amount
- Write down the terms of withdrawal before considering profits.
The important thing here is not to settle on a single correct answer based solely on the merits of knowing about business cycles. 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 merits of knowing the business cycle as a basis for making an actual decision, check at least these five things.
- Can you explain in one sentence the purpose of looking at the benefits of knowing about 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 identifying the benefits of knowing business cycles is not to act faster, but to reduce unnecessary errors in judgment.
Summary
The benefit of knowing business cycles is that they provide information for organizing investment decisions. Even if you read it as an advantage, treating it as a stand-alone buy/sell signal will make your judgment difficult.
The points to keep in mind are as follows.
- Determine the purpose first to see the benefits of knowing about business cycles
- 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. The advantage of knowing business cycles is not to use them as words that force you to make hasty decisions, but rather to use them as a tool to pause before buying or selling.