Take Advantage of the Economic Cycle

  • The Intelligent Investor takes advantage of the Economic Cycle as opposed to becoming a victim of it.

Cycles of Financial CrisisSource: www.historyshots.com

 

The Economic Cycle is a roller coaster.

It goes up and down,

and up and down,

and down and up,

and up, up, up, and down.

Be excited when the roller coaster goes down. Be afraid when it is going up.

 

"We simply attempt to be fearful when others are greedy and to be greedy when others are fearful."

- Warren Buffett

 

Enjoy Economic Collapses

The Intelligent Investor makes the most money when the economy crashes. That is when everything is cheap. Over the years, we culminate our thinking to be excited when the Stock Market plunges. The harder the economy falls, the happier we are. Stock Market bubbles is when we create a shopping list. It is when the Intelligent Investor goes on a shopping spree.

During recessions, the P/E Ratio of many stocks are in their teens. Stocks are cheap. P/E Ratios are less than 20. We are especially interested in stocks of companies with a Durable Competitive Advantage. The Intelligent Investor buys stocks with low P/E Ratios to get more "Bizzaz" for their "Bizazzle".

 

Equation 1

Buy stock of companies with a Durable Competitive Advantage when their P/E Ratio is less than 15.

P/E Ratio of a Company with a Durable Competitive Advantage

 

Example 1

Wells Fargo, a company with a Durable Competitive Advantage had extremely low P/E Ratio of 9, during the Financial Crisis of 2009. During this time, their stock price was trading between $24 and $27 dollars.

Year: 2011
Company: Wells Fargo & Company
P/E Ratio: 9
Price/Share: $24-$27

 

Example 2

During that same period, American Express, another company with a Durable Competitive Advantage, had a P/E Ratio of 6. Their stock price was trading between $10 to $15 dollars.

Year: 2009
Company: American Express Company
P/E Ratio: 6
Price/Share:  $10-$15

 

Be Afraid of a Raging Bull Market

The Economic Cycle is part of nature. It is like the sun rising and setting. The sun does not rise forever. Once the sun rises to its peak, it will come down and set. Very much like the sun, the economy will rise and fall over and over again until the end of time.

A "Raging Bull Market" is an economy that is rising very, very fast. The economy, however, does not rise forever. It will eventually fall. A Raging Bull Market is an indication of a recession coming around the corner. This is when the P/E Ratio of most stocks are greater than 40. When the times are really good and the Intelligent Investor is doing financially well, he considers selling stocks and switches his investments to government bonds. Cash in your profits and wait for a recession to come. Just think, what goes up must come down.

 

My Financial Analysis of Stocks

  • We Have Bottomed, Next Stop Dow Jones 100,000 The bottom of this recession was on March 23, 2020, when the Dow Jone hit 18,214. This recession was short-lived, it only lasted about 3 months. Our Gross ...
    Posted Jun 8, 2020, 12:32 PM by Intelligent Investor
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  • Another Dead Cat Bounce, We Haven't Bottomed Yet, Goldman Predicts S&P 2000 The Dow Jones has rallied to 22,327 over the past several days. However, we believe this is another dead cat bounce. We sold all our shares of United Health ...
    Posted Mar 30, 2020, 8:35 PM by Intelligent Investor
  • Coronavirus Is The Black Swan Event That Ended The Bull Market In 2020 A Black Swan Event is an unpredictable event that causes catastrophic damage to an economy. A few days ago, we wrote an article describing the coronavirus as a Black Swan ...
    Posted Mar 18, 2020, 9:21 AM by Intelligent Investor
  • Beyond Meat (BYND) and Dunkin (DNKN), The End Of A Tale Of 2 Speculative Stocks During a recession speculative stocks get pounded down to the ground. Thus, we sold all of our shares of Beyond Meat (BYND) and Dunkin' Donuts (DNKN). Beyond Meat is in ...
    Posted Mar 18, 2020, 9:22 AM by Intelligent Investor
  • The Dow Jones Rallies 1294 Points, Sold More Stocks On This Dead Cat Bounce The Dow Jones jumps 1294 points a few days ago, however, we believe that this rally is a "dead cat bounce". We have to wait for the next quarter's ...
    Posted Mar 16, 2020, 9:56 PM by Intelligent Investor
  • We Panic Sold Today was a really bad day in the market. The Dow Jones opened at negative 1000 points. It seems as if the coronavirus is gaining steam and is about to ...
    Posted Mar 18, 2020, 9:23 AM by Intelligent Investor
  • I'm Calling Tops, It's Over, The Bull Market Is Over, Here Comes The Bear Market, A Recession Is Coming We weren't sure yesterday that the bull market is over. In the morning today, the Dow Jones was up about 300 points, and I thought we were just having ...
    Posted Mar 1, 2020, 10:47 AM by Intelligent Investor
  • Went On A Selling Spree Today I think this stock market bull run is over. I just have a hunch that it's over. However, I've been wrong before. The deadly coronavirus outbreak seems to ...
    Posted Feb 24, 2020, 10:41 PM by Intelligent Investor
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