Cycle optimize your portfolio

Cycle optimize your portfolio

07 January 2019 from Anna Svahn
I am currently reading Howard Mark's latest book "Mastering the Market Cycle" where he writes about how to identify different cycles in the market and use it to his advantage when investing. In order to succeed with this, Marks recommends that one should primarily look at three things: history, stock psychology and emotions in previously similar conditions and price.


Learning to parry market cycles and positioning themselves differently depending on where we are in one is of course difficult, and just as Marks writes in the introduction, it is true that one really disciplined puts time on his analysis to succeed, but if one succeeds This can be your absolute greatest competitive advantage over other investors.

Remember that there are more markets than one

Learning to position yourself right at different stages of a cycle is not about taking short positions at the right time, but finding the right asset class or market to be long in depending on where it looks most attractive. It's easy to get stuck on an idea that diversification in the same different industries and sectors throughout cycles is a good idea, but it's far from the truth. It is difficult to timea market, but it is possible to strategically allocate its capital in a smart way depending on where we are in a market cycle. In addition to raw materials that are countercyclical, there are also several different share strategies to take advantage of in order to succeed in turning the stock market's cycles to your advantage. Although it initially feels unfamiliar and perhaps especially scary to invest in markets other than your home ground, there is a point in learning.

Marks believes that above all three things are important in order to be a good investor:
1. Try to find out more about the fundamentals of markets and companies than others.
2. Be disciplined and do not buy an asset for a higher price than it is actually worth
3. Learn to understand the investment environment we are in right now and learn how to position yourself best according to the opportunities available

"Price is what you pay and value is what you get" is a well-known quote from Warren Buffett but if you are to interpret it according to Howard Marks then there is no asset that is so good that it is worth paying a too high price. So in which markets, industries and sectors can we find attractive assets late in a cycle?


Depending on how brave you are, you can choose to either position yourself on the short or long side of an entire market or choose individual assets. Also consider what signals you consider important to take into account. For example, in December, the purchasing managers' index for the whole euro area came in at 51.1, which is lower than expected at 51.3 and clearly down from November's 52.7. It may not be the case to buy a workshop company, if you do not believe in an increase in coming periods. At the same time, record low unemployment is reported in several places, which could signal that few other people could be put into employment. How do you think that whole markets would be affected if unemployment from record lows started to rise instead?

Also consider the consequences of potential interest rate increases or reductions. This indicates that investors do not believe that the Fed will be able to carry out the two planned interest rate increases that they previously flagged for in 2019, but will rather have to leave the interest rate unchanged or even lower it.


Depending on where you land in your overall analysis of the outside world and entire industries, you can then make short or long-term decisions regarding individual assets or entire markets. If you think, for example, that the OMXS30 will recoil after the recent decline, you can easily position yourself with the Vontobel bull certificate with the OMXS30 as the underlying asset. Do you think the trade conflict between China and the US will end on March 2 or will it be worse than before? How will the possible end of the conflict affect the price of soybeans that have been beaten but recently recovered despite currently full stocks?

Remember, however, that no matter how accurate you are in your analysis, you have to prepare yourself for the wrong timing. Howard Marks writes about the importance of understanding risk from another perspective, that even the one who is right about the scenario in question may have errors about outcomes. Although the trade war comes to an end, it is not certain that it will lead to a rising stock market, just as raised interest rates will not have to lead to a pessimistic climate, even though history often repeats itself.

@Anna Svahn

Important legal information

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

21/07/2019 21:21:47


Write a Comment






* Required fields need to be filled in