Cycles are back…

A man doing a wheelie on his bicycle, indicating a share price rise for ASX companies

A man doing a wheelie on his bicycle, indicating a share price rise for ASX companies

The best thing about investing? The lessons are relatively simple and universal.

The worst thing?

Watching people ignore them.

Over. And over. And over again.

It’s not for nothing that Sir John Templeton famously remarked:

“The four most expensive words in the English language are ‘this time it’s different’.”

He is, of course, 100% right.

I’ve seen it so often over the past 25 or so years of investing.

And it had long been proven true even before I started with this caper.

There are so many examples, I frankly don’t know where to start.

Actually, I do.


And the human ability for self-delusion.

The first, egged on by the second, are the root of most problems in investing.

It truly is nuts.

There never has been a system more likely to help you get rich slowly than the stock market.

And yet, so impatient are we that we’ll happily bypass that likelihood for the chance of getting rich more quickly… or blowing up our finances in the process.

Just think about that for a second.

Small, regular investments in the ASX or US stock market have compounded to extraordinary wealth over the long term.

But too many of us are prepared to risk that astoundingly great outcome because we want more, or want it more quickly.

It’s madness.

And yet… that’s precisely what’s happening on the stock market, most days.

Generously, it’s a gross misunderstanding of the incredible possibilities of slow, steady wealth creation.

More realistically… it’s greed.

The lotto win.

The fear that it could take too long.

The chance that your cabbie, neighbour or brother-in-law might be getting richer, when you’re not.

See, history doesn’t repeat… but it does rhyme.

How many times have people told Warren Buffett he was ‘past it’?

Certainly in 1999, after three or four years of exuberance.

And then? An almighty tech crash.

And again in recent years, as free money and investor exuberance sent tech stock share prices sky high, again.

And then?


Or those companies relying on regular globs of cash to fund their business models. Like, say, Deliveroo, which has pulled out of Australia, citing an almost-certain view that it couldn’t reach profitability, given the competitive landscape.

‘Never put yourself in a position where you’re relying on the kindness of strangers’, to paraphrase Buffett.

And yet, when the money was flowing and share prices soaring, who could resist the Siren song?

Another one?

‘Inflation is dead’, they said.

Enough said.

Economies move in cycles.

Portfolios grow exponentially, thanks to the benefits of compounding.

And yet, people think linearly.

It’s not our fault, at least at a basic level.

Our evolutionary brains are relative infants, on a universal timescale.

Compounding is an alien concept to our biology.

But here’s the other thing.

Modern humans are caught between two worlds, and, investing-wise, at least, we’re stuck.

We don’t yet instinctively ‘get’ compounding, but most of us are living urban lives that rob us of the visceral reality of cycles.

Ask farmers about cycles.

They live these things.

Seasons, for a start.

Regular La Nina and El Nino, for another.

But those of us who’ve lived only urban and suburban lives could be forgiven for thinking that strawberries, tomatoes and oranges are year-round crops, such is their supermarket availability.

Still, maybe it’s not just that.

After all, the Tulip bubble, where single bulbs were selling for the price of houses, was a particularly agrarian phenomenon.

Whatever the cause, we forget cycles all-too regularly, and at our financial peril.

To again quote Buffett, “If past history was all there was to the game, the richest people would be librarians”.

But he’s talking here about stock picking, not an understanding of markets themselves.

An understanding and appreciation of economic and stock market history is vital.

Because, and this shouldn’t be a surprise, there’s little that’s really ‘new’ in investing.

Sure, the examples are different. And businesses and business models evolve.

But the principles that underpin business and investing?

They’re as old as the hills.

History is littered with examples of speculation.



Soaring – and crashing – share prices.

Poorly executed takeovers.

Businesses running out of cash.

Commodity cycles.

Interest rate cycles.

Inflation cycles.

For the young people (and/or new investors) reading this, I can’t be any more clear.

This has all happened before.

My wife, an educator and teacher, tells the story of every year’s Year 9 class trying the same tricks in the classroom.

See, they’ve just thought of them.

And, revelling in their own discoveries, try them out on the teachers.

Who… have seen exactly the same thing from every Year 9 class for years.

The kids can’t believe they’ve been caught. It was such a brilliant plan.

And so?

And so the choice is yours.

You can be the Year 9 kids, telling yourself you’ve discovered the magic formula.

Or you can be like the teachers – learning from the experience of every other Year 9 class in years gone by.

Sure, they might come up with a different variation, but the game is still the same.

It truly never is different this time.

In two ways.

First, arrogance reigns supreme. There is an uncomfortably large number of people who, even as they read this, are discounting my words. They know better.

And second, cycles will be cycles.

Economic cycles.

Share price cycles.

Confidence cycles.

And so, despite my best efforts, it’ll happen again. And again.

Which means, you have a choice.

You can be someone who decides to do the right things, the simple things, and the important things.

In short, you can be Aesop’s tortoise.

Or, you can be the hare – fast, keen, arrogant, reckless and greedy.

You know how this ends, right?

Invest accordingly.

Fool on!

The post Cycles are back… appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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