Why do people still lose money in the stock market despite doing a lot of reading , attending courses , analyzing ?

The market always moves in Cycle

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There are numerous versions of views and ideas developed by various market pundits and investors on market cycles, including Robert Precher’s Elliot Wave Theory, Harry Dent’s long-wave theories and Ray Dalio’s debt cycle theories.

The cycles could be as long as “ Kondratiev waves” ( 45-60 years ) or  shorter as “ Kitchin cycle “ ( 3-5 years ).

These cycles are closely tied with large-scale economic business cycles and have an important impact on investment, financial, cash flow and personal retirement planning.

Concept Explained: Business / Economic Cycles by Wikipedia & Investopedia

Business cycle

The business cycle or economic cycle is downward and upward movement of gross domestic product (GDP) around its long-term growth trend. The length of a business cycle is the period of time containing a single boom and a contraction in sequence. 

These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms), and periods of relative stagnation or decline (contractions or recessions).

Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite the often-applied term cycles, these fluctuations in economic activity do not exhibit uniform or predictable periodicity.

The common or popular usage boom-and-bust a cycle refers to fluctuations in which the expansion is rapid and the contraction severe.

Classification by periods

In 1860 French economist Clement Juglar first identified economic cycles 7 to 11 years long, although he cautiously did not claim any rigid regularity. Later, economist Joseph Schumpeter (1883–1950) argued that a Juglar Cycle has four stages:

1.   expansion (increase in production and prices, low interest-rates)

2.   crisis (stock exchanges crash and multiple bankruptcies of firms occur)

3.   recession (drops in prices and in output, high interest-rates)

4.   recovery (stocks recover because of the fall in prices and incomes)

Schumpeter's Juglar model associates recovery and prosperity with increases in productivity, consumer confidence, aggregate demand, and prices.

In the mid-20th century, Schumpeter and others proposed a typology of business cycles according to their periodicity, so that a number of particular cycles were named after their discoverers or proposers: 

Proposed Economic Waves
Cycle/Wave Name	Period (years)
Kitchin cycle (inventory, e.g. pork cycle)	3–5
Juglar cycle (fixed investment)	7–11
Kuznets swing (infrastructural investment)	15–25
Kondratiev wave (technological basis)	45–60

·         the Kitchin inventory cycle of 3 to 5 years (after Joseph Kitchin);

·         the Juglar fixed-investment cycle of 7 to 11 years (often identified as "the" business cycle)

·         the Kuznets infrastructural investment cycle of 15 to 25 years (after Simon Kuznets – also called "building cycle")

·         the Kondratiev wave or long technological cycle of 45 to 60 years (after the Soviet economist Nikolai Kondratiev).

Interest in the different typologies of cycles has waned since the development of modern macroeconomics, which gives little support to the idea of regular periodic cycles.

Why an understanding of “Cycle “ is important for the retail investor?

As investors , we always think that we are above average and smarter than others, we read a lot of books related to the financial world and stock analysis, we attended courses on stock’s selection and value investing, we did our homework by scrutinizing all the 700 plus stock to find the undervalued stocks or gems, but yet, we still lose money and our portfolio still “underwater “.

Feel frustrated? Definitely Yes ! as we have spent so much time on this and hope to be a smart long term investors, plan for our retirement.

The blog post was inspired by one of the comments made under the blog from our veteran & brilliant financial blogger SMOL ( The Math of Averaging Down -LINK )

temperament 23 October 2016 at 23:56

Why change indeed?

If sailing upstream against the Current you succeeded, how much more you will achieve if you sail downstream?
I think is at which point of the river you started and ended your sailing journey is the most important consideration.

Yes, always remember that market or business move in a cycle , depending on which part of the cycle you start your journey, winner by hindsight may think that they are smarter, loser may think that stock investing is not their game even with years of experience with a lot of reading, analyzing and attempt to pick the winner.

This chart clearly shown long term cyclicality of the market, at a certain point, if you are buying at the market peak, it may take 5- 15 years to just break even, but just to borrow words from SMOL :” we are not investing just to break even !”

If we are lucky enough and our entry point of start investing since 2009, we might be sitting with few multi-bagger, by hindsight, we might think that we are good at selecting winning stocks.

Again, the market has been moving in sideways since 2011, if we are entering the market during that time, we may be just barely "break-even" and with some winner and loser in our portfolio. We may also start questioning if “ stocks for the long run? (Link)” After 5-6 years of investing. 

Knowledge about the volatility of business and market cycles is a good reminder for those that are in or near retirement that does not have a long-term investment outlook or do not have the psychological emotion to withstand volatility in the stock market, hence switch your portfolio toward more stable asset classes.

All market cycles are different. It can be convenient to look back at a chart of the stock market during the last recession and assume that similar trading patterns will occur. However, this is rarely the case.

<  Chotto Matte >

Investing for the long run? base on what is your entry point! Investing for retirement? also depending on what is your entry point! Of course, selecting a good fundamental stock is also important, else we may not even have a chance to ‘break-even “. What ! am I saying "Timing" is more important that " Time " in the market? Both are equally important, it just that " better timing " will make your portfolio looks much better  :)

So, what is the best entry point of any particular stock in your portfolio? 

Cheers!

Quote Of The Day :

“The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions.” – Seth Klarman