Understanding Market Tops and Cycles

investment management

Successful navigation of tough markets is tied to successful investment management.

Things seem to be going better and Wall Street is getting very bullish. China is rebounding, Japan is stimulating, and Europe is going to be okay. Fiscal cliff crisis averted, sound the all clear?

Remember successful navigation of tough markets is tied to successfully managing your emotions and understanding how economic and market cycles work.

When all the news is good and market risks seem to have “disappeared”, investors tend to believe that markets will continue on this upward trajectory. Unfortunately the recent past does not predict the future. Many investors will jump into upward moving markets based on emotion. They don’t want to “miss out.” Think about Apple stock recently.

What happens is when all the good news is known, and that has been priced into the markets, the other part of the cycle can start. Remembering that cycles are always at work, you could stay patient and wait for a better time to buy assets cheaper.

The problem remains that when equity prices or bond prices are high it may mean that we are toward the top end of the cycle. Many of the riskiest assets all over the world are at highs in price and risk. Patience is the key.

In the Shepherd Wealth & Retirement Group workshop on market history, we talk about long-term bear market cycles. Because they end up moving sideways over a long period of time, but they go up and down and up and down like a roller coaster until they are over, I discuss being proactive about this environment and even being optimistic if the market drops! Pop open the champagne because that’s where the opportunities are. But only if you have an effective risk management strategy to take profits and look for other opportunities.

There are two books I refer to in our workshop: “Extraordinary Popular Delusions, and the Madness of Crowds”, which discusses throughout history when the crowd believes something, it doesn’t necessarily mean its okay, and many times it is shortly before a fall.

The other book, “This Time Is Different, Eight Centuries of Financial Folly” discussed debt crises throughout the last 800 years. My paraphrasing; Every time we got in these cycles of governments having too much debt, it didn’t end well, and the wise men of the day said, we know more, we’re smarter, we have this, we have that, and “this time it’s different”.

I don’t want to sound doomsday here, I’m not. Just remember when prices are up, risk is high. Could the markets continue to rise? Sure. But at high levels you may not want to be rushing to pick up nickels in front of a steam roller!


Investment Advice offered through Shepherd Wealth Group, a registered investment adviser doing business as Shepherd Wealth & Retirement.

photo credit: Leo Reynolds via photopin cc

About Dave Shepherd, ChFC, CFP®

Dave is the founder of Shepherd Wealth & Retirement in Tucson, Arizona. Dave is a Chartered Financial Consultant (ChFC) and Certified Financial Planner™ practitioner (CFP®). Have a financial question? Click Here to contact Dave Shepherd.

Investment advice offered through Shepherd Wealth Group, a Registered Investment Adviser doing business as Shepherd Wealth & Retirement.

©2014 Shepherd Wealth Group, Inc. 6300 E. El Dorado Plaza, Suite A200, Tucson, AZ 85715 | Phone 520-325-1600 Fax 520-325-9097 Disclosures