Dennis Slothower

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Dennis Slothower's
On The Money Newsletter

"Enhance Wealth and Minimize Risk"

Understanding Market Cycles

The adage "Buy low, sell high" speaks pointedly to the fact that our economy is cyclical. Like a breathing exercise, the economy expands and contracts. Business is either good or bad. Inflation, interest rates, and the money supply are either rising or falling. Stock prices are trending up or down. We are in a bull market or we are in a bear market. Change, itself, is endemic. Rare, indeed, are those times when anything stays constant.

One of the most important things an investor can learn is that market cycles move in concert with other cycles in our society.

What cycles should you pay attention to? There are simple cycles: daily, weekly and monthly price fluctuations, 50-day and 200-day moving averages; yearly seasonal cycles; pre and post election cycles, presidential and non-presidential cycles; business cycles; housing and real estate cycles; the money supply cycle; war cycles. These are just a few of the many cycles that influence market values.

The secret of enhancing wealth through the stock market is knowing what cycle is dominating the current price behavior and where the market is in the cycle.

Understanding market cycles is similar to understanding the ocean tide. The tide doesn't come in all at once. It comes in as a series of waves, each wave succeeded by the another. Smaller waves even have ripples going counter to an incoming larger wave, and yet all are part of the series of waves that make up the major trend of the tide. The stock market is much the same, with one wave, or cycle, part of a larger cycle, even a cycle within a cycle.

That said, your objective is to buy low and sell high. You must be able to identify when a market cycle has reached a top or has bottomed, in order to enter and exit the market to your advantage. After a true bottom, the prevailing trend will be up until the cycle peaks. Once a true top is reached, the trend will be back down until the cycle bottoms again. On The Money will help you identify these important tops and bottoms.

The High Cost of Buy and Hold

Buy and Hold has long been a treasured investment strategy, mostly by stock brokerage and mutual fund firms. During down trends these "experts" have no qualms in recommending continued purchases as a "cost averaging" technique. Those who benefit most from this strategy are the brokers and mutual fund firms, not you, the buyer. If "Bear" markets were short-lived and of moderate magnitude, then Buy and Hold might produce good fruit. And if you really believe this, I have a bridge I want you to look at.

The last century has seen nearly thirty (30) bear markets. The average bear market length has been 17.7 months with an average decline of 30.8%. A bear market begins, on average, every 44 months (3.6 years).

Suppose you invest $10,000 and a serious bear market takes you for a ride and you lose 50% of your investment. What's your balance? (...You're right..., $5000.)

Now, what percentage gain would you have to earn to make back your principal ....? The same 50%....? Wrong! If you lose 50% on your investment, you must make 100% back just to break even again!

A 100% return on $5000 will get you back to your original $10,000. And it gets much worse if you happen to lose more than 50%:

The primary rule of risk management is to PRESERVE YOUR CAPITAL. How do you do this? (A subscription to On The Money is a great way!) You must chart the investment performance for each mutual fund you own on a daily basis. Why? Because you need to visually see when your fund is losing momentum so you can sell when there is too much downside risk. A picture is worth a thousand words, and in this case maybe worth several thousand words all spelled the same: DOLLARS! (See the links under "Fund Analysis" for a large number of online tools to help you do this.) If you subscribe to On The Money, you will automatically get daily charting and recommended buy and sell signals - by name within the portfolio of your choice. (Click here for a RISK-FREE TRIAL)

The next rule is to USE TIMING INDICATORS to evaluate risk. The objective is to cut losses quickly and let profits run. You need to know what cycle is dominating the market and where the market is at in the cycle. There are reliable methods for evaluating cycles and market risk. They are discussed daily in the On The Money updates.

The final rule in managing risk is DISCIPLINE! You must trust and follow the rules. Discipline yourself to buy and sell when reliable indicators tell you and not on hunches or "best guesses". Too many times an investor will think, "I'll just wait. It will come back," only to find that the cycle was right, they were wrong, and their money is gone!

On The Money is a unique daily investment service. Each day I explain the dominating market cycles and give you crystal clear and concise instructions. Buy and sell recommendations are given by name in the portfolio of your choice. I believe that a subscription to On The Money will help you achieve your financial objectives while providing critical risk management of your valuable financial assets.

(View the historical OnTheMoney performance figures here ....) and (Read more about OnTheMoney.....)

In fact, if I were you, I would at least try out the risk-free trial, then go to my web site and read all of the "Articles & Special Reports" that I have written. Then, if you want, cancel your subscription and get all your money back. The information you will gain just from my special reports is priceless, in many ways, especially if you understand it and use it for your benefit.

Thank you for your interest.
I look forward to serving your financial needs and
hope you join our OnTheMoney family,