Monday, 11 September 2017

Conceptualizing the Market and Full Risk Cycles

When you deal with investments you must have heard about market cycle- what that means to you, do you have the ideas on how to invest time on entry points, the impact it may have on your portfolio and assets and what investment strategies you should take up so that you can hopefully beat the market.  To sufficiently judge a portfolio within the current state of the market at any given time, investor should identify and tend to experience how the market goes to 4 different cycles.
Step 1- Accumulation- Every cycle starts with an accumulation period, in which asset values begin to strengthen after experiencing a significant decline, m, asking the end of the previous market cycle. Once the market is at their low points investors still believe that the market as bearish and are hesitant to buy. Many of the investors keep their holdings in fear of suffering of further losses. But this decision of keeping the holding may be the opportunity for others to capitalize and acquire holdings at discounted prices. As more investors begin to take advantage of this, market value and perception begins to take a positive turn.
Step 2- Markup- When market visualizes the growth in prices and investor interest, the cycle enter the second stage known as the markup phase.  Due to the actions of investors in stage 1 who invested in stocks at or near the lows of a market, the markets start experiencing higher highs and higher low overall.  This indicates that investors sideline the time to rejoin the market has arrived. The increase in the market performance builds up the confidence among the hesitant investors who still see the market as bearish as they performed in accumulation stage. Observing the rising prices the stocks triggers demand from investors. Who doesn't want to miss out on the potential growth, resulting in additional market recovery or new highs?
Step 3- Distribution- As prices start to lose momentum and form a high, the distribution phase of the cycle begins. Investors keep on checking the market and if the market is no longer experiencing substantial growth, initiate liquidating their holdings in order to maximize their profits. Investors who still see a hope for a bull market rally will pick up these newly available assets, consequently, because a period of higher volatility as prices fluctuate in any of the direction. With half of the buyers keeping one foot out the door, prices experience lower highs and lower lows turning the tide on market sentiment.

Stage 4- Mark- down- The left over investors holding losses slowly discover once again that what goes up must come down. If you realize the fact that the stock values are now going through a downtrend, and those who are left in the beat down names begin to feel greater against over their holdings and sell their assets which will further mark down prices.

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