Perhaps a very profitable opportunity to invest in the stock market long term is based on the Kondratieff cycles.
This is an economic theory, created by the Russian economist Nikolai Kondratieff around 1920. In a nutshell, describes the economy in cycles, or waves, which last in his long stage, about 54 or 55 years, ranging from a state depression and economic pessimism to a state of maximum expansion and optimism.
Actually, originally it described 3 phases, expansion, stagnation and recession. Then they have become 4: Kondratieff spring (improvement), summer (acceleration), autumn (stagnation) and winter (depression).
The phases economics range primarily by two forces that move the economy: technological innovation and debt, public or private.
Since the 20s, they have been postulated multiple interpretations of the theory and have been linked with other cycles shorter waves, 8-9-10 and 16-18-20 years, in long waves.
In the end, has not entirely clear to me when cycles begin and end, but based mainly on several articles of K. van der Merwe in Stocks & Commodities , I made a personal interpretation in the following graph:
This graph should not observe the length of the falls or rises in the graph. It should be noted only trends and years of cyclical change.
We see that in the depths of the depressions are low prices, good to buy: they are the beginning of a bullish phase will reach the years of good times.
The years of good times are years when all goods are in high prices, perfect for sell.
From that point, there is a correction that should not be the deepest. Then the economy “bounce back” to the maximum price. At that time, the shoeshine boys and mothers in law (e.g uninformed investors, usually individuals) purchase all gold price, and then burst bubbles. These are the years of panic, when depression begins.
But let practicality, this is good for something ?. Because this is an economic theory and we know that the economy and the stock market does not go together.
Indeed, if we compare the stock highs SP500 with that graph, the maximum retarded year 2000 is compared to the graph, and the maximum end of 2007, approximately coincident. Instead minimums, they are developed: the minimum of 2003, 2 years ahead, and 2009, almost 3 years.
This makes some sense: Maximum bag tend to be after the maximum of the overall economy, as it is when the last buyers buy shares at the maximum price, before the crash.
However, in economic downturns, stock market investors tend to anticipate, because their expectations are bad; and therefore, the minimum bag comes before the worst economic times.
Therefore, we will get wet: what will happen in the bag?
- 1- Subirá the bag until 2016 or 2017, and there will be a significant correction.
- 2- Then, continue to rise until 2019-2020, which begin major depression.
Is this safe? Well, no one knows the future, as commented in ” if you want to invest not be a turkey” .
Besides, I’m a bit flaky with that of the cycles. There is another wave pattern I have followed closely, cycles Benner , who had a track record impressive. They took decades doing almost perfect forecasts. Well, in 2007-2013 the stock movements have failed dismally.
However, Kondratieff cycles have a significant advantage over other models of waves and cycles: are based on sound economic theory, fluctuations in supply and demand as technological innovation cycles and credit.
Not all economists share, but if enough, at least partially. For that reason, I believe that these cycles can take some credit.
So remember those years as a reference in our long-term vision. Which then are accurate or not, we’ll see. But at least we have the information ..