Cycles - What Runs The World

In the same way women have menstrual cycles, the moon has lunar cycles/phases and the sun rises on the east and sets on the west business markets have cycles. Everything in this world has cycles. So here are ideas on cycles that apply to anything you do in life. This is specifically relevant for crypto.

Ideas on cycles: Simple rules for market tops and bottoms

1. Number 1: market tops are relatively easy to recognize buyers always believe this time is different and it’s usually not

2. Number 2: there’s always a surplus of relatively cheap debt capital to finance acquisitions and investments in a hot market. In some cases lenders will not charge cash interest. Buyers will accept over optimistic accounting judgement and financial forecast unfortunately most of these forecasts do not play out in the downturn/deceleration/decline

3. Number 3: the number of people you know who start getting rich. The number of investors claiming out performance rise with the markets. Loose credit conditions and a rising tide can make it easy for people without any particular strategy or process to make money accidentally. Making money on strong markets is short lived. Smart investors perform well through self discipline and sound risk assessment even when market conditions are reversed. Since the 1970's there have been 7 major market declines/ recessions. 1973, 1975, 1982, 1987, 1990-1992, 2001, 2008-2010. It’s important not to react too quickly. Most investors buy too early and underestimate the severity of recessions. Most investors don’t have the confidence or discipline to wait until a cycle plays out so these investors suffer by not maximizing the profit they would have otherwise made by executing the same idea at a later point. Timing the bottom isn’t easy. It typically takes a year or 2 for an economy to turn around from a recession. This means you can invest at the bottom with no return for a long period of time. To avoid this you need to invest when values are 10% above their lows. Asset values increase when economies regain momentum. While most investors say they want to make money. They’re actually interested in psychological comfort they would rather be a part of the herd even when the herd is losing money than make the hard decisions that yield the greatest rewards. Doing what everyone else is doing seems like a way to avoid blame. These investors tend not to invest aggressively during market bottoms but instead do it near market tops where it makes little sense. They like the comfort and reassurance of watching assets go up. The higher prices go the more investors convince themselves it will continue appreciating

4. The same phenomenon explains why it’s impossible to bring an IPO to market near the bottom of the cycle. But as cycle grows riper the number size and valuations of IPOs explodes

5. Cycles are ultimately powered by all types of supply and demand characteristics. By understanding and quantifying them you can be well positioned to know how close you are to a top or bottom

6. In real estate for example building booms are stimulated when existing buildings are being valued at significantly more than replacement costs because developers understand that they can build a new building and sell it for more than they paid. This is an excellent strategy if only one building is being constructed but almost every developer sees the same opportunity to make what they think is easy money. If a lot start building at one time you can easily predict supply will overwhelm demand and the value of buildings in that market will decline precipitously

7. The idea that no one can see bubbles simply isn’t true

Investing through ups and down. The success in any investment depends in the large part in the cycles you made them.

Cycles can have a major impact on the growth trajectory, valuation and rate of return for any investment. So far there have been 4 Crypto crashes: 2011, 2014, 2018, and 2022. The next one should come around the end of 2025-2026.

“Down cycles are not fun. But they form the basis for enormous future profitability.”

— Stephen A. Schwarzman

P.S.

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No Jay-z video quote this week but a classic Pusha T/Kanye West Funk Flex Freestyle: