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Cycles Series #1 - Decennial pattern

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
vand
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Cycles Series #1 - Decennial pattern

#501923

Postby vand » May 21st, 2022, 11:59 am

Thought it would be interesting to start a series of thread about observable market cycles.
#1 in this series will be the 10 year stock cycle - so between 1900-2020 that gives us 12 independent samples.

Broadly speaking, in an "average decade" stocks will spend the first 4 years correcting and consolidating sideway, and then going on to make most of their gains between years 5-10
Image
https://www.seasonax.com/research/dow-j ... year-cycle

Isn't that interesting? Given where we are today I wouldn't be surprised if the next couple of years are also difficult for stocks, and then the next bull market only gets going in the 2nd half of the decade.

Personally from a sociological perspective this makes sense to me - humans do tend to think in decades, and we see each new decade as a blank slate. It takes a few years understand the trends that are going to shape the decade, to purge the excesses of the back end of the last decade and then by the middle part of the decade the wheels are firmly in motion that go on to define the rest of the decade.

I know the DOW is not the most representative index, but I don't think it would make a material difference what index you used - its just that these sort of analyses are easiest down with Dow data as it has fewer components.

BT63
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Re: Cycles Series #1 - Decennial pattern

#502044

Postby BT63 » May 21st, 2022, 9:38 pm

How do the numbers look if you exclude possible outliers (exclude the highest and lowest)?

How do the numbers look if, instead of averages, medians are used?

I believe that markets have some underlying cycles but I think the cycles are often distorted by government or central bank action. I think the 2008-present QE prevented a long valuation (P/E or CAPE) cycle from bottoming around a decade ago, so we currently have a significantly extended valuation cycle.

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Re: Cycles Series #1 - Decennial pattern

#502055

Postby TUK020 » May 22nd, 2022, 8:12 am

This is based on the premise that patterns one can discern in past data can be used to predict future market movements.
Isn't this better placed on the Technical Analysis board?

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Re: Cycles Series #1 - Decennial pattern

#502321

Postby dealtn » May 23rd, 2022, 3:04 pm

vand wrote:Thought it would be interesting to start a series of thread about observable market cycles.


Sorry but what exactly is "observable" here. Very little from what I can make out.

vand
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Re: Cycles Series #1 - Decennial pattern

#502392

Postby vand » May 24th, 2022, 8:52 am

dealtn wrote:
vand wrote:Thought it would be interesting to start a series of thread about observable market cycles.


Sorry but what exactly is "observable" here. Very little from what I can make out.


for me, your inability to interpret data is the biggest observable here.

vand
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Re: Cycles Series #1 - Decennial pattern

#502395

Postby vand » May 24th, 2022, 8:59 am

BT63 wrote:How do the numbers look if you exclude possible outliers (exclude the highest and lowest)?

How do the numbers look if, instead of averages, medians are used?

I believe that markets have some underlying cycles but I think the cycles are often distorted by government or central bank action. I think the 2008-present QE prevented a long valuation (P/E or CAPE) cycle from bottoming around a decade ago, so we currently have a significantly extended valuation cycle.


I haven't done that exercise but suspect the pattern would still be there. We know that 1987 leaves a scar on the chart for the years ending 7, for example. It seems that the middle years of the decades are the best, especially years ending in 5.

And in reply to the point about central banks etc, I think you can look at the most recent decade gone to see that in fact it holds up pretty well to this pattern. Markets are always changing, but fundamental human behaviour doesn't.

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Re: Cycles Series #1 - Decennial pattern

#502400

Postby dealtn » May 24th, 2022, 9:12 am

vand wrote:
dealtn wrote:
vand wrote:Thought it would be interesting to start a series of thread about observable market cycles.


Sorry but what exactly is "observable" here. Very little from what I can make out.


for me, your inability to interpret data is the biggest observable here.


So you introduce a chart without labels on the axis and link to a report where the authors themselves state it isn't clear, with a conclusion they are "of two minds" about the existence of a 10 year cycle. And your biggest observable is my inability to interpret data (which at most represents a sample size of just 12!).

I think the neutral reader can make up their mind.

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Re: Cycles Series #1 - Decennial pattern

#502444

Postby JuanDB » May 24th, 2022, 11:38 am

It took me a couple of minutes to interpret the graph but the text bottom gives the context. Returns in years ending 0-4 are much lower than those ending 5-9. I’m not sure 2020-2021 follows that pattern!


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