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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