Asset cycles. If you’re not incorporating asset cycles into your investment strategy, you should be. By understanding the cycles that your investments will undergo, you can not only position your investments to take part in tremendous growth, but you can avoid (or whether) great losses to your investments. This is a powerful, powerful type of investing that some of the top players are involved in.
What is Asset Cycle Investing?
In the simplest terms, asset cycling requires you to look at the different asset classes and break down these individual classes into cycles. Every type of asset has a different cycle that it will go through. Let’s say most asset cycles begin at a low point, at the bottom where the asset isn’t particularly attractive. That, however, makes it a fantastic time to buy. You can acquire at a low cost, potentially increasing your profit margin as the asset continues to go through its cycle. This follows the saying, “Buy when there’s blood in the street.”
When it comes to asset classes, this cycle is true for real estate and technology. It’s true for blockchain and crypto, as well as paper assets, bonds, the bond market, the stock market, and commodities (like precious metals). The bottom of the cycle for each of these assets is undesirable when you own, but become extremely advantageous when you’re looking to buy. So if you buy at this low point, you’re really investing for cash flow. With low prices you’ll be able to buy more and more assets, all while they begin to climb that cycle and become increasingly desirable. The investors who come in late to the game, after the asset has grown more desirable, are actually at a disadvantage. And then, if you sell when the cycle is at it’s peak, you receive the highest return. Then, you can invest in other assets at the bottom of their cycles.
How Do You Identify the Cycles?
This is the tough question, because no one can really time markets. Maybe Sam Zell can, as he timed the real estate market well during the last cycle. What Asset Cycle Investors do, however, is just before an asset reaches the peak of its cycle, they’ll pull out and begin selling the assets within a particular class for cash flow. Every single asset class will have a high point, right before it hits a downturn and becomes unfavorable again. Then, when the cycle is at the bottom again? The investors reinvest in the bottom tier of the cycle.
The key here is all in the timing. If the investors wait too long to sell, they’ll be selling at the bottom of the market when prices are low. If they sell too quickly, investors could lose out on profits on the top end. The strategy itself depends on your understanding of the trends within each market. Once you begin to get the feel for the market, if becomes much easier to understand the cycles of each asset class. And when you can get in a pattern of buying and selling this way, it becomes a very, very powerful way of investing.
It’s not easy work but it is rewarding, and you should approach this type of investing as a lifelong learner. I’ve seen this behavior modeled in my own father, who spent his life pursuing mastery. A famous martial artist, my father is still to this day traveling to eight or more countries a year. He’s 70 years old and one of the highest rated karate masters in the world right now. He models what it’s like to pursue excellence daily, and hone his craft daily. It has never been a destination for him, but a journey. His example is the influence behind what it means to be a “Cashflow Ninja.” And therefore, as cashflow ninjas, we must strive to be lifelong learners—studying the world, the political and economic landscapes, and the different markets and niches within those markets.
When it comes to asset cycle investing, there’s a lot to unpack. The niches within each market are key when it comes to choosing and developing assets to invest in. Make it your business to understand:
- How each asset class works—how the market operates, what is required to maintain or develop the asset, and surrounding tax law. Knowing how this works ensures that you build smarter strategies.
- What the niches are within the asset class—if you’re investing in real estate, maybe to flip houses, maybe to invest in the Airbnb sphere, or any other niche, it’s important to know the trends. Each of the above examples will work very differently, even from region to region. Go into your investments well-informed, so you can see the asset successfully through the asset cycle.
- The cycles—learn to recognize when there’s “blood in the streets,” or when to buy. Learn when it’s a good time to sell. Studying the economic climates of the past can help you better predict the future.
You don’t have to learn about each asset class all at once, but you should study your desired classes deeply.
Looking to Examples
These lessons are easier said than learned, because all we can do is predict. But if we looked at the stock market within the last few weeks, as of writing this, we’d see that they’re at an all time high. We could make the argument that the stock market is at the top of its asset cycle. It’s uncertain what the immediate future will hold, but the record breaking numbers make it a safe time to sell.
We’ve also seen the real estate really booming in many different niches. In many of these markets, we could make the argument that they’re at the top of their asset cycle. Real estate markets are much different than the stock market, but it still has a cycle that we’ve been able to recognize in the past. The economic climate and the housing needs of the nation will have a large influence in this sphere.
We could also say that gold and silver, as commodities, are gaining some momentum. They no longer at the bottom of their cycle, now that the two have reared their heads. Certainly not at the top of their cycle, gold and silver are probably somewhere in the middle as people are looking for a place to put capital in. In part, this could be due to the political uncertainty, so people are looking to have assets with direct physical value on a global scale.
Crypto-currency and block chain are relatively new to the scene, so it can be much harder to get a read on the cycle. Because it’s new, however, you could say it’s at the beginning of the cycle. The argument could also be made, however, that the current stagnation points to the top of the cycle. Time will tell, and a closer look at the trends of the two will help.
Mark Twain said, “History doesn’t necessarily repeat itself, but it sure does rhyme.” I’ve taken this to heart, and it’s key to being a Cashflow Ninja. Before you make any investment, take the time to do some research. You’ll find that you have the best results when you take the time to create strategies, and not just rush headfirst. Ask yourself how we got to where we are today, so you can position yourself for the future in any particular asset class you choose.
Once you understand the cycles of your desired asset classes better, you can position yourself in a way that optimizes your investments. When done well, this method of investing allows you to avoid losses and take part in phenomenal growth. I encourage and support your journey to asset cycle investing, and hope you’ve found something interesting to incorporate into your holistic wealth strategy.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/
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