I’ve just finished running my annual workshops with The Fifth Person teaching about cycle based investing. The workshops were full day workshops conducted over the weekends. While tiring, they are also incredible fun to run as I share about the different cycles that dominate our economy.
One thing that continually impresses me time and time again is how prevalent cycles are and how much they matter when it comes to investing.
Most people are familiar with business cycles and maybe the property cycle. Less well known but equally important is the credit cycle i.e. the growth of loans within the economy.
CYCLES AFFECT VALUATIONS
Valuation models (discounted cash flow, P/E etc) are essentially projections into the future. You can’t do valuation work before thinking about where are we are in the cycle and how that might affect future demand.
As Howard Marks is fond of saying, trees rarely grow to the sky and few things …