Combining fundamental/company-specific analysis with the market cycle

[perulv]

As I mentioned in another thread on this board earlier, I recently read "mastering the market cycle" by Howard Marks.

 

Until now, I have always ignored "the market" when making investment decisions. My thinking has been that it is impossible to know where the market is heading. And I still belive this to be correct. But Marks nuanced this a bit for me. I don't have to know where the market is going, but I should have an idea about where we roughly are in the market cycle. If we are somewhere in the high(er) part of the cycle, the probabilities for high returns are lower.

 

What are your thoughts or strategies for this?

 

I am afraid that starting to sell what I otherwise think of as good investments, just because I have a hunch (or number) that we are in the later stages of a bull market, is not a good strategy. Unless the securities themselves are too highly priced. the market can stay irrational longer than... etc. But perhaps the threshold for buying should be higher. That might seem like the same thing, but I find that not doing anything is often a better decision than trying to react by doing "something". So a rule that avoids buying (doing nothing) might end up less destructive than a rule that make me sell (do something).

 

On the one hand, Marks (sorry for always bringing him up. It's just that his are the most recent books I've read, and his reasoning makes sense to me) says that investment decisions cannot successfully be mechanized. But on the other hand, as discussed elsewhere on this forum (e.g. http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/cognitive-biases-how-to-avoid-them/) we humans are not as rational as we might think, and I believe some degree of checklist/rules can help us overcome these weaknesses.