07 Jun 2019

Investing When the Cycle is Mature

Mark Turner

Mark Turner

07 Jun 2019

positioner
The old adage of the “cycle surfer” who only “buys low and sells high” makes for great reading but it is a fallacy.

Anyone who has spent any time trying to invest in markets, be they real estate or any other asset class, will tell you that you only know the inflection point in a market once its in the “rear view mirror.”

Investing when everyone says it’s a good time is usually an indicator that it is time for caution and to think about an exit. Sure, we can all buy when the market is cheap, the usual problem is finding capital with the nerve to do so.  As markets rise it becomes increasingly challenging to invest without overpaying.

We have seen over the last few years a consistently rising market rewarding the brave who were prepared to “back themselves” – mostly with other people’s money - and pay what seemed at the time a high price, often for assets with some unsolvable issues.  If the music does not stop, then money can be made. Conversely if there is a change in sentiment (real or perceived does not matter) then losses can be catastrophic.

If we view downside risk as being at least as important as upside potential, then we need to think and work harder when investing. Important questions become:
  1. If the market were to correct by 5% or more, would this asset reflect the market or move more or less?
  2. Is debt going to be your friend or magnify the downside?
  3. Will I be making the seller rich? If so, why do I think the asset will continue to outperform?
Hardly a comprehensive list but some key questions to focus on. 

No one knows what markets will do – anyone who claims so should be questioned as to why they haven’t spent their life making a personal fortune and not investing for others.

What we do know is that we should invest in assets that will perform in line with the market and implement strategies that mean we can outperform with those investments.