Make Money in This Troubled Economy by Understanding Cycles

Make Money in This Troubled Economy by Understanding Cycles

The economy runs in cycles: understanding this is a key to wealth building.

There have always been economic “booms”. You will recall the High Tech stock market Nasdaq was skyrocketing in the late 1990s. Real Estate was skyrocketing in the early 2000s. And, this is not a recent phenomenon. Speculative Booms have been around for hundreds of years. It is generally agreed that the very first one was “tulip mania” in Holland, peaking in February 1637.

There have also been Busts. When have the Busts occurred? Right after the Booms, of course.

Understanding this cycle is crucial.

Prices rise beyond reason. Sanity catches up. Prices fall way too low. Once people are no longer frightened, they realize the prices are actually too low and they cautiously buy until prices rise to the fair market value. Then, forgetting the lessons of the past, excited investors begin paying too much and another Boom begins. Then, the next Bust. Then the next Boom. Etc.

And so it goes, on and on, with people never learning the lessons of the past.

How can you profit from realizing this pattern? Just be calm when prices are skyrocketing. You will recall that, when High Tech stock prices were skyrocketing, the greatest investor of all time, Warren Buffett held no High Tech stocks whatsoever. Broke people raced in to these over-priced stocks mocking the venerable Buffett. They called him “out of touch”. They thought that they know more than Mr. Buffett. Then, the Boom bust as it always does.

So, when the next Boom comes, and it will, keep your calm. If you really want to buy those stocks or that real estate or those tulip bulbs, then just wait a while till the prices crash.

Learn the lesson of the Boom and the Bust. It will recur over and over again for the rest of your life. Get used to it. Profit from it instead of being ruined by it.

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