Mastering The Market Cycle: Getting the odds on your side

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Howard: First of all, I have a great partner, Bruce Karsh, we support each other in the things we do. When you're out on your own, I think it's much harder, and the other thing is Bruce and I are kind of different in some ways, and so we don't merely second each other, we also complement each other. I think it's great to have a partner, and kind of like in marriage, a great partner in our business is one of the great luxuries that you can obtain. Well, these blinks aim to answer such questions. Often underappreciated and usually poorly understood, cycles – whether in a particular market or an entire economy – are the linchpin of superior investment performance. By the end of these blinks, you should have a feel for how they work and, therefore, be that much closer to becoming a superior investor. However, this optimism can be dangerous as it can lead to overvaluation and a subsequent market crash. 2 – The Bubble Stage – Thrill and Euphoria

It’s fascinating how the market is constantly overreacting in a positive or negative direction, and very rarely underreacting or appropriately reacting. Alan joined Jensen from Washington Mutual where he held the position of credit analyst. Prior to Washington Mutual, he was a high yield credit analyst and trader for Columbia Management Group. Alan began his career as a trader at Ferguson Wellman Capital Management. He earned a Bachelor's in business and MBA from the University of Oregon and is a CFA Charterholder. We think all of this experience makes Alan an excellent person to interview our keynote speaker. Alan, please take it away. A few thoughtful investors recognize that, despite the prevailing bullishness, things won’t always be rosy. The bubble stage of the market is characterized by a period of irrational exuberance and overvaluation. During this stage, investors are driven by the fear of missing out and are willing to pay exorbitant prices for assets that are not supported by fundamentals.Much of investing is subject to gross generalizations and sweeping statements. Usually stressing positives due to greed and this seems particularly true in real estate. Everyone is heard things like “they’re not making any more land’, “you can always live in it”, and “its a hedge against inflation”. Mastering The Market Cycle explains that people eventually learn is that regardless of the merit behind these statements th Fear can lead to panic selling and a market crash, while greed can lead to irrational exuberance and a bubble.

Emotions play a significant role in market cycles, as they can drive investor behavior and influence market movements. This stage is often followed by a market crash, as investors realize that the prices of assets are not sustainable. 8 – The Correction Stage I'm a big believer in the CFA. I've held that charter for, oh I don't know, 45 years I guess, and I think the charters are now up to 140 or 150 thousand. And my number is 3730. So you can imagine I've been toting it around for a long time. I'm glad to support the CFAs and especially Portland. The investor’s goal is to position capital so as to benefit from future development. The first step is to decide how you will deal with the future. One of the things that's the strongest about investing is that when trends get going and keep going for a while, it starts to feel like they're going to go on forever, but the longer they go on, the higher they go, what it really means is that the end is even closer than it used to be. It just never feels that way.Marks reminded the audience of the quote, often mistakenly attributed to Mark Twain: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Few people are always even keeled and unemotional. For this reason, few investors are capable of staking out a midpoint position that balances greed and fear, and staying there. Understanding and being alert to excessive swings is an entry-level requirement for avoiding harm from cyclical extremes, and hopefully for profiting from them.

The way investors are collectively viewing risk, and behaving in regard to it, is of overwhelming importance in shaping the investment environment in which we find ourselves. The state of the environment is key in determining how we should behave with regard to risk at that point. Alan: Okay, so I'm gonna start here with some of the questions we've gotten from the audience. Again, I just encourage folks to continue to think of questions and we'll get through as many as we can here. First one here, I think this is interesting, it's a question we probably all ask ourselves from time to time, what investment mistake have you made that comes to mind and what did you learn from it?

It is now generally accepted that countries can owe money, although questions arise from time to time about how much debt is prudent. But the answer is always “not too much more than we have now”. The use of government surpluses to cool a thriving economy is little seen these days. No one wants to be a wet blanket when the party is going strong and spending less than you bring in attracts fewer votes than generous spending. Central Banks Effects on the Cycle (RBA, BOJ, The Fed, BOE, The ECB)