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Larry Cyna
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Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the... More
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CymorFund by Larry Cyna
  • Should You Invest In Stocks ? Every Cycle Reaches A Point Where Investors Shy Away From Stocks 2 comments
    Jul 23, 2012 8:21 AM

    Investors Are Being Advised to Invest in Bonds or Dividends
    It is interesting how history repeats itself, yet few seem to understand this. Our economic world revolves in cycles, and each cycle is remarkably similar to the ones before and to the cycles that will be experienced in the future. As we near the bottom of this current cycle, the stock market has fallen to lows, investors are beaten up, and faith in the long term benefits of the stock market has mostly disappeared.

    This is coupled with financial scandals where Wall Street executives, and the barons of industry are exposed for money hungry uncaring, greedy and unconscionable people. Portfolios have been severely hurt, and negativity abounds. Bad news stories abound in the newspapers about further stresses to come, and worry and concern are in large supply.

    The newspaper USA Today just published a comparison of the drought in 1933 to today's drought. The article brings back images of the "dust bowl" of the Great Depression. Another article promotes fear of the stock market.

    Headline in USA Today Last Month
    The print edition had a center column, above the fold, screaming green headline "Invest in stocks? FORGET ABOUT IT." .... The story read "On Main Street these days, investing in the stock market is about as popular as watching a scary movie on a 12-inch black-and-white TV.

    Fear and uncertainty is pervasive. Whether you apply identical descriptions to the many economic cycles before, or the current phase of the cycle that we are now in, the description fits very well.

    Wall Street's long-running story about how stocks are the best way to build wealth seems tired, dated and less believable to many individual investors. Playing the market isn't as sexy as it used to be. Since the 2008-09 financial crisis, the buy-now mentality has been replaced by a get-me-out, wait-and-see, bonds-are-safer line of thinking.

    Understanding the Future
    There seems to be remarkable similarities in every economic cycle. Investors rush into the stock market. More and more people talk about the stock market. Investment newsletters grow in number, TV shows and commentators devoted to the markets increase in number. Then, the inevitable downturn comes. The current inevitable downturn is more pronounced than most because of the massive amounts of money and debt created by Allan Greenspan, the previous chairman of the Fed, yet the downturn would have come regardless. It is just worse because of Mr Greenspan.

    As the downturn proceeds, bad news pervades everywhere as the media reports devote themselves to the current mass interests, which interests border on fear. The mood of downturn becomes more pervasive, investors flee investments in search of safety. It almost seems as if there is a preordained order of things whereby until investors give up hope, the cycle will not end.

    Every Cycle Ends in the Beginning of a New Cycle
    In this ever increasing realm of fear and uncertainty, we have to remember that the ending of each cycle is also the beginning of the next cycle. It is true that we have unsustainable debt, that Europe is in crisis, that the US housing and job reports are dismal, that China is slowing, and all of the rest.

    It is also true that as the current cycle grinds to an end, that the new cycle is beginning, as it always does. Technology and communications are advancing at an unprecedented rate. Our world is changing faster than it ever has before. Millions of new consumers demanding goods and services are being created. As the baby boomer age draws to a close, new generations are maturing and becoming consumers and innovators. There are more ships than ever before, more telephones than ever before, more consumers than ever before, faster dissemination of information than ever before, and so on.

    Timing Entry into the Stock Market
    There have been many studies and reports on long term investing in the stock market. Generally they say that an investor can expect 3% to 6% return annualized, but the true returns, in reality, depend on the inflation factor, and more importantly, on the timing of the investment. If investors had great patience, did not buy and hold through all cycles, did not buy when the media was excited about the stock market, but instead bought only when everyone else was cowering in fear and ignoring the stock market, and sold after the cycle hit its zenith, the Return on Investment would have been stellar.

    The conclusion is that now is the time to consider investing. Perhaps the market will fall some more. Perhaps not. Perhaps the Euro will be abandoned. Perhaps not. Perhaps China will start having bumps in its road. Perhaps not. One thing is for sure. Whether it be because of a change in the price of energy, or a new technology, or a new way of doing business, or because of something else, the next cycle will start shortly. Stay tuned.

    The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds. Larry Cyna and/or the CymorFund have positions in the shares of companies mentioned.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (2)
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  • I don't think people are considering this an ebbing situation. They are looking at a huge run-UP from 2008-9 to the present time and thinking the market might be a little toppy. There is also the election to contemplate and to consider whether the party that made the economic mess in the first place and has prevented any real expansionary efforts for the past two years is going to gain more power in the election. I wouldn't be putting new money into the market today. I'm not pulling out, either, but I have moved from growth oriented stocks to slightly more defensive dividend payers. Doesn't mean I'm right, but if I were sitting on cash now, I would be much more hesitant to jump in than I was in early 2009. THAT was the time everyone was really fearful.
    14 Aug 2012, 11:32 AM Reply Like
  • Author’s reply » You have a reasoned approach. The age old question is at what point do investors look back and say "I wish I would have...". The world runs in economic cycles. Each cycle runs its course, ending in failure and losses, and out of the ashes comes the next cycle. There was little rationale for the artificiality of the drop in 2008 and 2009 where because of politics and greed, things ran amok. At the same time, there was little rationale for the rise in values over the last 4 years.

     

    Yet today, in spite of the gloom and doom (see my latest article), stocks and commodities are now trading in a narrow range, and have been doing so during these summer doldrums. I think this means that most people have a similar attitude of wait and see. The number of dollars on the sidelines, in money market funds and dividend funds continues to grow and is staggering in its enormity.

     

    Yet we see little interest in the market. I think that what is important, is that the end of cycles such as we are in now, weeds out many companies, and the ones with good assets, cash and staying power, are proving their worth. Whether the next cycle is powered by new technological advancements, or by new ideas, or the race for space, I don't know. What I do know, is that those value-rich companies are a bargain today. If anyone were able to tell the exact bottom of a cycle and buy at that point, it would be a marvelous thing, but picking such a point to enter remains a matter of luck rather than anything else.

     

    My point is that if a stock is so cheap now that by all reasonable metrics it has excellent value and staying power, it is a good idea to enter now, rather than wait.

     

    Thanks very much for your comments. I appreciate the feedback.
    15 Aug 2012, 02:27 PM Reply Like
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