Fortunes are made on the stock market only when a person buys under-valued stocks in well managed companies at the bottom of a cycle, and then rides the cycle with patience. However, a lot of us wait for the cycle to turn, and then lose hope and sell off prematurely, just before we see dawn. And we therefore lose the opportunity to make the fortune, and end up with a big loss instead.
But be careful - riding the business cycle is relevant when talking about industries, not about individual companies. While industries recover, it is not necessary that an individual company in that industry recover from the cycle due to some strategic errors it has made. To illustrate, about a decade ago I had invested in a company called Moser-Baer which is into manufacture of data storage systems and solar photo-voltaic cells - both big ticket items about 10 years ago. I assumed I had made a good study of the trends, and invested wisely in a company which was into 2 high growth sectors.
I was badly mistaken.
1.While there will always be a need for data storage systems, the problem was that this organisation had defined data storage systems as physical hard-drives, and CD-ROMS - so it was left out in the cold when the storage system moved rapidly into a cloud platform.
2. Similarly its solar cells business got into trouble when the technology rapidly changed and a superior form of solar cells with greater efficiency came into the market at lower price points.
In both these cases, the move away from a format is irreversible, though both the industries emerged from the cycle stronger. Hence I was forced to cut my losses and run.
What about basic industries such as shipping and mining which are currently at its nadir? My belief is that these industries have existed for centuries in more or less the same form, and will never go out of existence. So those holding shipping and mining stocks in ethically run organisations - keep your faith for a little longer, and hold - and to quote Howard Marks, the legendary investor, you will surely gain when the cycle turns.
But be careful - riding the business cycle is relevant when talking about industries, not about individual companies. While industries recover, it is not necessary that an individual company in that industry recover from the cycle due to some strategic errors it has made. To illustrate, about a decade ago I had invested in a company called Moser-Baer which is into manufacture of data storage systems and solar photo-voltaic cells - both big ticket items about 10 years ago. I assumed I had made a good study of the trends, and invested wisely in a company which was into 2 high growth sectors.
I was badly mistaken.
1.While there will always be a need for data storage systems, the problem was that this organisation had defined data storage systems as physical hard-drives, and CD-ROMS - so it was left out in the cold when the storage system moved rapidly into a cloud platform.
2. Similarly its solar cells business got into trouble when the technology rapidly changed and a superior form of solar cells with greater efficiency came into the market at lower price points.
In both these cases, the move away from a format is irreversible, though both the industries emerged from the cycle stronger. Hence I was forced to cut my losses and run.
What about basic industries such as shipping and mining which are currently at its nadir? My belief is that these industries have existed for centuries in more or less the same form, and will never go out of existence. So those holding shipping and mining stocks in ethically run organisations - keep your faith for a little longer, and hold - and to quote Howard Marks, the legendary investor, you will surely gain when the cycle turns.
