Master Medium-Term Market Cycle

Learn how to invest in the medium term to make a lot of money

It is absolutely necessary for any investor who wants to succeed in the investment world to know how economic cycles work and to act according to these cycles. This will give him a substantial advantage in maximizing profits and minimizing losses.

If you study past cycles, understand their origins, and remain alert for the next one, you will become keenly attuned to the investment environment as it changes. You'll be aware and prepared while others get blindsided by unexpected events or fall victim to emotions like fear and greed.

To identify where we are in the cycle, it is essential to analyze the economic cycle in the short, medium, and long term:

Short Term

A few months ago, the FED announced that it would raise rates and that the supply of money in the markets would decrease or at least not increase. This has caused the major growth companies and crypto-assets to be hurt very badly after the great rally they had after Covid-19, precisely because of the opposite.

The top Growth stocks that multiplied x4-x10 from April 2020 to September 2021 have seen their market cap decline by over 70% in many of the cases.

However, after seeing how the markets have behaved at the start of this week, we have seen one of the leading growth investment funds, ARKK, outperform its EMA benchmark, which implies that the short-term trend is bullish.

This has not happened since November 2021. In addition, as we have mentioned many times before, the first stocks to make floor are always the growth stocks. These quickly begin to grow and multiply their capitalization several times over in just a few months.

On Wednesday, 21st July:

• BTC is over 23% up in the last 7 days

• ETH is over 52% up in the last 7 days

• MATIC is over 67% up in the last 7 days

Therefore, in order to capture this downtrend and benefit the most from it, we must buy these growth assets in times of real fear.

The trend is clear, and the subscription could be profitable simply by sticking with this lesson.

Medium Term

If in the short term the view may be hopeful, it is not so much so in the medium term. If we look at one of the main indicators, 10Y Treasury Minus 2Y Treasury, or in other words, the Yield Curve, we see the following:

This means that investors do not trust that they will be paid in the long term through the reserves of major countries. When this medium-term confidence fails, we see, in just a few years, the most significant recessions of the last 40 years.

The curious thing is that the Covid, without being an economic crisis, but being a health crisis, before it the yield curve was very close to being negative.

This may even make the possible recession that is coming in the medium term even larger.

When this happens, only those with an asymmetric portfolio will be the ones to really take advantage of the situation.

Is it possible to know exactly when? NO. Generally, it has been 1-3 years since this yield curve inversion has occurred.

We must be prepared so that when this happens, we can capture the entire decline with very OTM PUTs and CALLs. Once these options are monetized, we can be in a position to buy short and long-term assets at a huge discount and with a lot of money in our pocket.

Long Term

If you don't want to keep an eye on the markets and want to make money, this is your option. Invest in index funds, preferably both developed and underdeveloped countries (ACWI), and forget that you have your money there.

The S&P has averaged over the last 94 years a return very close to 8%. The curious thing is that there is no calendar year. The return of this index is close to the average. In fact, in a 5-11% return range, the S&P500 has only finished on 8 out of 94 occasions.

It is curious to know this data.

If we open the range, we see that in a range of +-8% (0 to 16%), the index has ended the year in that range 31 times, which means that less than 1/3 of the time, we see this happening.

But look at the following table:

Of the 94 years, more than 2/3 had a positive return, more than 1/2 had a return greater than 10%, and more than 1/4 had a return greater than 20%.

In contrast, only 1/3 had a negative return, around 1/5 had a return less than 10%, and only 6 out of 94 years had a return less than -20% (vs. 26 years of a return greater than +20%).

How to act, and what are we doing?

As mentioned above, the how depends on the individual. A person who wants to be less dependent on the markets would ideally buy a passive index and forget about that money for the next 20-40 years. Undoubtedly, he will have made a lot of money.

But if what you really want to do is a home run, passive management alone is not enough. You need an anti-fragile portfolio that prevents your portfolio from falling more than 20%.

Not only that, we must anticipate these falls. In fact, from the medium-term data where we talked about three economic crises due to the inversion of the curve, two of these three recessions are within the six below 20% in a year.

If you don't get hurt and benefit (a lot), that's where you can build generational wealth. You will be able to buy assets that perform well in the short and long term at a deep discount.

This week we have taken advantage of the rise in these short-term assets to buy a potential hedge.