You probably wear a watch … it tells you where you are (time-wise) and hints as to where you should be (running late for an appointment, of course!).
But, did you know that there’s also an Investment Clock?
The investment clock is one of the best indicators on the movement and condition of the finance, property and equities markets. It was first published in London’s Evening Standard in 1937 and showed the movement of markets within a decade cycle. Many people, however did not readily accept the probability of events turning out in a cyclical fashion so it took a while for some to warm to this new area of thought.
As late as last year, I was reading articles that said that we were at One O’Clock on the Investment Clock: rising interest rates and fear that stocks were on the verge of falling (and, fall they did) …
… then, something surprising happened: the clock did a ‘fast-forward’ to where I think we are today:
At the bottom of the cycle when fear and bankruptcy are abounding and interest rates are down, remember that this is the time to be positive. It is the time when there are bargains galore, ready for the taking.
The driving factor behind the business cycle is the capitalist system itself. Recessions are a way of ridding itself of excesses. Things like speculative lending by banks, high risk real estate trading and inflation. Society simply starts going a bit faster than the economy and places a lot of strain on resources. This means we are left with inflation and high interest rates. The bank then imposes a credit squeeze for a period, long enough for those excesses from the system to force inflation down.
Always remember that during a slump the price of most things will fall, but the value of cash does not. In fact, the value of cash goes up because it is measured by its increased ability to buy things more cheaply. This is the best time to hold cash and come out of those holdings when the economy is in the doldrums.
Nobody knows how long we will languish in the ‘doldrums’, and if you count the recent stock market rally as a ‘good news’ indicator it may be almost over, but it’s clear – at least to me’ … we are already in the cycle where assets are cheap … both stocks and real-estate with the added bonus that interest rates are also cheap …
… Bargain Hunter’s Heaven.
Here’s what to do:
1. Start looking for good quality companies with a strong history of earnings growth that are undervalued (did you know that GE has produced 10 years of 10%+ year-over-year earnings growth?) that are selling for low P/E (that’s the price compared to earnings … if you can pick up GE at P/E’s of 13 and hold for a long time, you have a sure-fire winner!) and HOLD. Don’t feel obligated to borrow to buy these, but increasingly, this will be a good strategy as stocks will be the first to rebound.
2. Start looking for good quality income-producing real-estate that you can afford to HOLD … these will be the last to recover (could be a 7 to 10 year cycle to fully recover) but, prices will begin to steadily increase. So, buy soon to lock in these yummy low interest rates before they, too, start to rise. The combination of low prices and low interest rates is equally a sure-fire winner.
3. Start a service business that helps large corporates – as they recover, they will need to outsource more and more services. It can be tough (corporates can be tough to deal with) but they can also pay off big and provide a ready exit strategy (as the outsourcing ‘fashion’ begins to swing back to ‘insourcing’ and your largest customers fight to buy you out).
Just don’t forget to always keep an eye on the clock …