Monday, December 28, 2009

Investing Over Business Cycles - Alpha

In this issue:
1. What is a Business Cycle?
2. Business Cycle Investing
3. Soros’ Theory of Booms and Busts
4. Cycles within Cycles
5. Glacial Cycles and the Fall of Rome


“History doesn't repeat itself, but it does rhyme,” wrote Mark Twain. His words apply to investing, where profits and returns come from cycles. Hence the most basic axiom of investing, “buy low and sell high,” can and should be put in context. Two things determine “high” and “low.” One is intrinsic value: an investor must be able to discount cash flows with some certainty, and compare this to prices. The other is cycles: an investor must know where in the business cycle we currently are because intrinsic values depend on earnings, which are a product of the economic environment. Below we lay out the case for business cycle investing and end with some comments on other cycles and where in the business cycle we are now (our subjective odds of a W, V, and L).

Please see the attached pdf file for this newsletter, here:

Investing Over Business Cycles - RISK OVER REWARD NEWSLETTER PDF

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