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

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    Posted Nov 17, 2017, 10:38 AM by Intelligent Investor
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    Posted Aug 28, 2017, 6:46 PM by Intelligent Investor
  • Repurchased Apple After Warren Buffett Confirms He Purchased it As a rule-of-thumb, if an investment has a Return on Equity (ROE) of greater than 30%, it means the company has a Durable Competitive Advantage. Apple's Return ...
    Posted Jun 5, 2017, 12:35 PM by Intelligent Investor
  • Purchased Hilton Hotels in Anticipation of a 3 for 1 Stock Spin-Off Last December I purchased Hilton Hotels in anticipation of a 3 for 1 stock spin-off. In other words, Hilton Hotels will be splitting into 3 independent companies. The most ...
    Posted Mar 1, 2017, 6:12 PM by Intelligent Investor
  • Warren Buffett's 5 Best Investing Tips 1) Don't buy or sell based on the headlines.2) Don't try to profit from bubbles.3) Put your emotions aside.4) Always invest in productive assets.5 ...
    Posted Aug 19, 2017, 4:26 PM by Intelligent Investor
  • Sold Wabco (WBC) to Raise Cash in Case there is a Recession The signs of a recession are getting stronger so I've decided that I needed to raise cash. Out of all the stocks I own, Wabco (WBC) seems to be ...
    Posted Sep 7, 2016, 10:22 AM by Intelligent Investor
  • Sold Chicago Bridge and Iron Chicago Bridge and Iron (CBI) comprise 2.5% of my overall portfolio. I first bought this stock at around $46/share. I sold it at $34. So, I basically took ...
    Posted Aug 25, 2016, 9:50 AM by Intelligent Investor
  • 5 Things to Keep in Mind for Entrepreneurs Interesting article from Mark Cuban.CNBC Article
    Posted Mar 18, 2016, 9:54 AM by Intelligent Investor
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