Yogi Berra is famous for saying: "In theory, there is no difference between theory and practice. In practice, there is". In theory, cyclical companies are better BUY opportunities at the bottom of the cycle, when profits are low, and valuation multiples are high. In practice, it can be very difficult to buy at the bottom of the cycle, as it takes tremendous conviction to bet on a bleeding, often over-leveraged company, not knowing when the pendulum will finally turn. In practice, one is tempted to open a position well into an upward trend, when a company returns to adequate profitability and a reasonable valuation. Buying into a recovery, however, poses its own risks. We shall examine these considerations through the...
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