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You're listening to BBooks in your daily life; it's easy to spot a familiar habit. Whenever we turn on the TV, watch the financial news, or sit together in cafes. The most common question among investors is whether the market will rise or fall tomorrow, whether the economy will decline next year, or where interest rates will go in the near future; we always crave a prediction.
We seek reassurance from economic experts who offer macroeconomic forecasts with seemingly impossibly precise decimal numbers. But when we take the time to study the mindset of the most brilliant investment minds, we suddenly realize a somewhat harsh truth. Attempting to predict the macroeconomic future is largely a futile endeavor.
Why is that? Let's reflect a little on investing. If you have the same flow of information as everyone else, you analyze it in the same way and you act exactly like the crowd out there. How can you expect to achieve outstanding results then? Successful investing doesn't come from being right; it comes from being more right than others in accurately predicting the macroeconomic landscape .
A colossal picture dominated by billions of human decisions, by politics, by natural disasters, and by countless random variables is almost unthinkable. Very few people are capable of consistently predicting the long-term macroeconomic future correctly . And if someone happens to guess them a few times, their fame is like fireworks—a flash of light that quickly fades away.
There's a great story about Oa Dan Bap Phet; he once said that for information to be truly valuable, it must meet two conditions. First, it must be important, and second, it must be something that can be known. The future of the economy is indeed very important, but unfortunately, it's something we can't know for sure.
So, if the future cannot be predicted, how do wise people invest? From the perspective of investment masters, instead of becoming prophets, they choose to become skilled players in the game of chance . They thoroughly understand a concept called the probability map. To make it easier to understand, let's try playing a little game.
Imagine you have a sealed box in front of you containing 100 marbles, including red and blue marbles. If you draw a red ball, you will win money. If you draw the blue ball, you lose money. If you don't know how many red and how many blue marbles are inside. Placing your bet on the dice roll is just blind gambling, even if you know there are exactly 50 red and 50 blue dice in the box.
If the win-loss ratio is equal, then spending money to play won't give you any long-term advantage. But what happens if you have a privilege? The privilege of seeing inside and knowing for sure that the box contains 70 red marbles and only 30 blue marbles. Are you 100% sure that the next time you reach in you'll pick a red ball ?
The answer is no. Although the probability is very high, the risk of drawing a blue ball always exists because there is always room for randomness in life. However, if you were allowed to play this game multiple times, you would be extremely rough. Because you know that with a 70% chance of winning and a 30% chance of losing, the odds are completely in your favor.
In the long term, you will definitely be the winner. That's exactly how great investors think; they never make a definitive statement that the market will rise tomorrow. Instead, they ask themselves whether the current situation has a higher probability of the market going up or a higher probability of it collapsing.
They don't try to eliminate risk; instead, they seek to understand the risk and tilt their bets in their favor. And this is where the magic of the cycle comes into play. Market cycles. It 's not something we should use to predict dates. The greatest benefit of observing cycles is that it helps us know how many red marbles and how many blue marbles are in the box in front of us when the market is at the bottom of despair, when bad news is rampant and asset prices are dirt cheap .
That's when the box containing 80 red marbles emerged victorious. Wise people realize this. They understood that the probability of risk was very low at this point, and the advantage was clearly in their favor. Therefore, they bravely bought in. They acted decisively and forcefully. But when the market is at the peak of euphoria, everyone thinks they're a genius.
With prices skyrocketing, the box is now filled with the blue marbles of losses. The next event will most likely be a sharp decline. Those who are level-headed realize the atmosphere is fraught with risks; they don't need to know the exact date when the bubble will burst. They simply realized the odds were no longer in their favor.
And so they reaped the rewards, reduced their investments, retreated into a defensive stance ; the difference between a gambler and a brilliant investor lies in this very restraint. Ordinary people always want to invest with the same attitude and the same amount of capital, regardless of whether it's sunny or stormy outside.
Those who understand the cycle know how to adjust their posture. They don't beat themselves up. by asking questions like what the future will be like. Instead, they calmly asked, "Where are we standing right now ? We can't control the direction of the wind, but we can certainly adjust our sails by observing the current cycle.
We stop guessing the future and start the real work of an investor, which is preparing to embrace it. And before I get into the review, I want to pause for a moment because there's a truth that anyone who reviews books must acknowledge: no speech, no matter how long, can replace the actual reading experience.
What I'm about to tell you is just a slice, an interpretation. The full emotions, the hidden layers of meaning, only become apparent when you sit down and read each page yourself. So if this book intrigues you, please read it. Not only to fully understand what I'm about to share, but also to appreciate the author's efforts, and it will serve as a valuable resource on your journey of knowledge discovery.
Now, let's embark on this journey of discovery together." Let's break the book. When we look at the development of society, businesses, or financial markets , our general psychology is to always expect everything to move in a straight line. We like stability; we expect the economy to grow by 6% this year and then steadily the same next year.
And the year after that too. But if the world truly operated smoothly like a pre-programmed machine, life would be too easy, and the financial market wouldn't have those crashes that leave so many penniless or those surges that change the fates of so many. The truth is, the market never moves in a straight line; it always fluctuates.
Imagine it like a pendulum. That pendulum always has a dip in the middle, considered the most balanced, reasonable, and stable point. However, the time the pendulum remains still at that reasonable point is extremely short; for most of the time, it swings from one extreme to the other. But what is it that pushes that pendulum?
Is it really that far-reaching? This is one of the most profound discoveries that has completely changed the way we view the world. Events in a cycle don't simply follow one another in a line; we often think of it as economic growth first, then recession, then recovery. If we only think that way, we're only seeing the tip of the iceberg.
The true nature of a cycle is the law of cause and effect. Yesterday's events don't just precede today's events; they are the cause of today's events. Let's look at a real-world example. When the economy is booming, businesses are profitable, workers have jobs, and incomes are rising. These consecutive successes begin to change people's psychology, initially leading to confidence, then gradually turning into complacency.
When making money seems too easy, people begin to forget safety principles. They tell themselves, "Everything is too good." Why not borrow more money to expand the business? Why not use leverage to invest more? And so the debts started to balloon. Banks, in their excitement, also lowered their standards.
Lending money blindly. You see, the very success and prosperity of the previous period sowed the seeds for the downfall. It wasn't a storm falling from the sky that brought down the market, but rather the weight of bad debts and reckless decisions made during a period of euphoria. This overloaded the economic machine and caused its axle to break.
Success inherently contains the seeds of failure. And then when the crisis hit, the pendulum swung violently in the opposite direction, the economy froze, assets were sold off at rock-bottom prices, and people were so afraid they would never borrow or invest again. They tightened their belts , cutting back on all risky expenses.
But the miracle of the law of cause and effect emerges precisely in the depths of that pessimism. When all the rubbish has been swept away, when asset prices fall to unbelievably low levels, that's when the most solid foundations for a new growth cycle are formed. Failure, often done quietly, can sow the seeds for subsequent spectacular successes .
It's a never- ending loop. So why is it that even though this cycle repeats itself time and time again, people keep falling into the trap? There's a classic saying, often whispered among financial elites: history never repeats itself exactly , but it always rhymes. Each time she returns, she's wearing a new outfit.
The setting changes, technology advances, and the story is woven in a completely new way . Hundreds of years ago, people went crazy for tulip bulbs. A few decades ago, people were crazy about tech companies; more recently, they are excited about luxury real estate or intangible cryptocurrencies. The outward appearance of each era is completely different.
If you keep searching for an event that is exactly like the past, to use as a warning sign, you will never find it. But the underlying rhyme remains unchanged throughout the ages. That is the rhythm of human nature. Whether in the 17th or 21st century, whether transactions are conducted with paper money or digital currency, people always share a common emotional impulse: blind greed when they see others getting rich.
It's the naive belief that this time will surely be different, and the extreme fear that leads to the abandonment of all reason when the market collapses, where machines, mathematics, and physics are always precise and emotionless. A machine, when supplied with sufficient fuel, will run in a straight, steady line.
But financial markets are not machines. It is made up of millions of people. As long as humans are involved in pricing and buying and selling, emotions, greed, and fear will continue to exist. And so the cycle will never disappear. The task of those seeking sustainability in investing is not to fight the cycle, nor to try to change it.
Our task is to listen to the rhythm of history only when we understand that the current harsh winter is the result of an excessively hot summer before, and that this winter will eventually pave the way for a bright new spring. Only then can we remain calm in the face of market storms, knowing that the market never follows a straight line but always fluctuates in cause-and-effect cycles.
We need to step back a little to look at the bigger picture, the picture of the entire economy. Because financial markets, ultimately, are like the shadow of the economy, everything in the market is built on expectations about whether that economy is healthy or sick. However, a common misconception among many people when looking at a country's development is their inability to distinguish between long-term trends and long-term trends.
And what is the short-term shock in the long term? The real driving force behind an economy's progress is determined by fundamental and core factors . Imagine it like the engine of a car. This engine is built from two main components: demographics and labor productivity. Demographics refers to the number of people born and participating in the labor force.
The more people work, the more wealth the economy creates. Labor productivity, on the other hand, is the progress of technology, meaning that in the same hour, people can produce more products than before. These factors change very slowly; it takes decades for a generation of children to grow up and enter the workforce.
And it also takes just as long for a new technological revolution to truly take effect in daily life. Therefore, in the long term, the economical car tends to move forward steadily and confidently. But that car never ran smoothly on a flat road. In the short term, the economic path is always bumpy and full of shocks.
Sometimes it accelerates suddenly, other times it comes to a painful halt. Why is there this jerking motion? If the engine is running at a constant speed, what causes the car to bounce up and down? The answer once again calls for the human element . In the short term, the economy is strongly influenced by consumer sentiment and spending decisions.
When people hear good news, see their favorite team win, or simply see property prices rising, they suddenly feel richer. Even though their income hasn't actually increased, they've decided to spend more freely, boldly borrowing money to make purchases. This psychological surge fueled a short-term economic boom, far exceeding the sustainable pace of the long- term engine.
But when a dark shadow appears, whether it's an epidemic, a false rumor, or a major bankruptcy, panic immediately sets in. Everyone tightened their belts and stopped spending. Businesses postponed expansion plans, the economic engine hit the brakes abruptly, creating painful recessions . Even though the country's productive capacity remains intact, seeing the economic vehicle constantly speeding ahead and then braking sharply, those managing the country, specifically the government and the central bank, cannot sit idly by.
Their job is to keep this car running as smoothly as possible. To achieve this, they use powerful tools such as adjusting interest rates, raising or lowering taxes, or injecting and withdrawing money from circulation. Their way of operating often goes against the mainstream. When the economic car speeds too fast, people excitedly spend money, commodity prices skyrocket, and the central bank immediately hits the brakes.
They raised interest rates. Borrowing money became more expensive, people and businesses cut back on spending, and the trend of economical cars gradually cooled down. Conversely, when the car shows signs of stalling, when a recession hits and unemployment rises, the government and central bank will step on the gas, lowering interest rates to their lowest levels, injecting money into the market, and encouraging people to borrow and spend to keep the car running.
In theory, the role of these regulators is absolutely essential and noble. They were born to smooth out the potholes and bumps on the economic road , but reality is much harsher . Managing a huge economy is not like driving a car, where you press the brake and the car stops, and press the gas pedal and the car goes.
Even the most skilled regulators are incapable of foreseeing the future. They make decisions based on yesterday's data in an attempt to control a reality that is changing every second, hoping to create a better outcome for tomorrow. Furthermore, monetary policy interventions, whether braking or accelerating, often have significant time lags, sometimes taking months or even years.
Its effects only truly sink into the economy precisely because of the time lag and the inability to accurately measure human psychology. These regulatory efforts often lead to an ironic outcome. They are very prone to pushing things to new extremes. When they try to avert a recession by pumping out too much cheap money for too long.
They inadvertently fostered greed. That easy money flows into the stock market and real estate, creating huge asset bubbles. And when that bubble becomes too big, forcing them to slam on the brakes to regain control, that sudden braking inadvertently triggers a new cycle of devastating collapse. Understanding how this economical vehicle operates and the drivers behind the wheel, we realize that intervention from regulatory bodies does not make the cycle disappear.
Conversely, in many cases, policies that oppose the cycle inadvertently contribute to making the volatility of the next cycle even more intense. We have just seen that in the short term, the economy also experiences ups and downs. But if you look closely, you'll realize that GDP typically only fluctuates by a few percent each year.
The drop from 6% growth to 2% was considered a significant shift. And if growth falls into negative numbers for several consecutive quarters, we call that a recession. The volatility of the real economy is actually quite modest. But let's look at the stock market , which reflects the profits of businesses, or the real estate market .
Why is it that when the economy slows down just a little, the profits of many companies evaporate completely, stock prices plummet, and land prices freeze to disastrous levels? These markets not only follow economic cycles, but they also amplify those cycles many times over. What power created this tremendous amplification?
To answer that: We need to get acquainted with a companion for every business and investor. The leverage: Imagine you are running a passenger transportation company . You rent a large office and buy 10 passenger vans. Whether you have 100 customers today or only 10, you still have to pay the full office rent.
Vehicle depreciation and driver's basic salary. That's called fixed cost. When the economy improves and people travel more, your ticket sales revenue increases by 20%. However, you don't need to rent more office space or buy more vehicles right away. At this point, your fixed costs are not increasing.
While the revenue generated was even greater. As a result, from a 20% increase in revenue, your net profit could skyrocket to 50% or even more . This difference is what serves as operational leverage. Companies with higher fixed costs tend to see their profits grow more rapidly. Even when the economy is booming, the game isn't over yet, and most businesses don't rely 100% on cash for their operations.
They borrowed money from the bank. Let's assume your own capital is 10 units of currency. You borrow 10 units of currency to start a business, and you have to pay 1 unit of interest each year. When a business is profitable, after paying a fixed amount of interest to the bank, all the remaining profit goes straight into your initial capital of 10 units.
Thanks to this financial leverage, your return on capital is much higher than if you only used cash. However, leverage is an extremely sharp double-edged sword when the economic cycle reverses. Even if it's just a slight downturn, your company's revenue might decrease a little, but remember that office expenses still have to be paid, base salaries still have to be maintained, and worst of all...
A fixed monthly interest payment to the bank. Never be late for an appointment. Your profits will collapse at a much faster rate than they increased many times over. Operating leverage and financial leverage combined can turn an economic sneeze into a severe case of pneumonia for corporate profits. That's why the stock market always reacts violently and excessively to seemingly small macroeconomic changes.
And if leverage can destabilize businesses, elsewhere there 's an even more ruthless element. Waiting for those investors is the real estate market, a real estate cycle that is full of the amplification of financial leverage, but it also possesses another deadly characteristic. Given the time lag, let's return to the familiar cause-and-effect loop.
When the economy is booming, people spend money lavishly. With the high demand for housing, the real estate market has become incredibly hot. Real estate developers saw a huge opportunity, and the excitement was soaring. They began planning to build grandiose projects. If you're a shirt factory and you see good sales, you can simply work overtime, and the following month you'll have new shirts ready to launch onto the market.
But real estate is different, from the moment you find land, apply for permits, design, and secure financing, until the reinforced concrete structures actually take shape and you can hand over the keys to the customer. It takes many years. During that long, drawn-out period, the world outside was not standing still.
When these massive projects begin to take shape, the economic cycle has most likely already entered a recession. With credit access tightened, people losing their jobs, and no one having spare cash to buy a house anymore. And so a typical real estate tragedy emerges. The massive supplies, initiated by the extreme euphoria at the peak, then suddenly poured out.
The market hit rock bottom, resulting in a wave of abandoned buildings. Ghost towns sprung up, prices froze and plummeted. Project owners burdened with massive debts are collapsing one after another. That is the cruelty of time delay. The real estate sector cannot flexibly scale down production. The immediate drop in demand, the mismatch between the decision to build and the actual product launch, is the reason why the real estate cycle frequently experiences severe supply shortages or catastrophic oversupply .
Understanding the amplifying power of leverage and the temporal disparity , we realize that behind the frenzied fluctuations of corporate profits and real estate prices, there is a silent undercurrent that nourishes all the excitement and also deprives us of all life. Up to this point, we've navigated the economic cycle , the ups and downs of corporate profits, and the deadly delays in the real estate market.
But all those upheavals, no matter how intense, could not be pushed to extremes without one core element. This element, considered the lifeblood of the entire financial system , is also the most devastating cycle. Credit cycle. To make it easiest to visualize, imagine the credit market as a giant water tap and the source of capital.
It is the water that nourishes all business activities . This water elephant has a very strange characteristic. Its opening and closing are entirely governed by the psychology of those holding the money, specifically banks and investors. When the economy is booming, everything is profitable, and the bad debt ratio is at a record low.
Looking at those impressive numbers, the lenders began to feel extremely reassured. Fear disappears, giving way to greed. They want to lend more money to earn more profit. But everyone's money is the same. How can we get customers to choose us for their loans instead of others? The only way is to lower the standards.
Bank A lowers interest rates, Bank B doesn't require collateral, and Bank C even lends money without checking whether the borrower has the ability to repay. This is what Howard Gardner calls the race to the bottom. In a fit of exhilaration, the valve operators opened the water taps wide . Money is flowing everywhere.
People easily borrow money to buy assets whose prices have skyrocketed or to invest in projects. But in normal times, no one would dare to pay any attention to it. The financial market always has an ironic truth. The worst, riskiest loans are often taken out during the best times of the year . People are throwing money around and forgetting a crucial principle of survival.
Always leave a safety margin for unexpected wind conditions, as the wind always changes direction. Just a small spark could ignite a fire, perhaps a slight increase in interest rates or a drop in profits for a few businesses. Those who borrowed excessively began to default on their loans, and this is when bankruptcy began to occur.
The lenders' psychological pendulum reversed at lightning speed; greed evaporated, replaced by utter panic. They realized they had lent money that was n't worth lending. What was their immediate reaction? They didn't turn the tap down; they shut it off completely. The door to credit was brutally slammed shut .
This is when the real disaster struck. The financial crisis, ultimately. It's not that people lack assets, but rather that they lack cash when the credit taps shut. Not only were reckless speculators wiped out, but even legitimate businesses collapsed because they couldn't borrow new money to pay off old debts.
Assets were sold off at any price. The market is filled with complaints and despair. But do you remember the law of cause and effect that we discussed earlier? Failure always sows the seeds of success. It is precisely during that darkest moment, when the doors to credit are locked and everyone is afraid to reach into their wallets, that a gold mine emerges: the cycle of bad debts or undervalued assets begins .
We're entering the most exciting phase . Put yourself in the shoes of a level-headed investor around you right now. People are trampling over each other to sell off assets that still have real value. Just because they were forced to pay off debts or because they were too scared, nobody bought anything.
When you are the only one willing to put money on the line in a market starved for capital. The power is entirely in your hands. You have the right to demand an extremely low price. The strictest protection terms and an unbelievably high return on investment. You don't buy because the property is flashy; you buy because it's being sold at a price significantly lower than its true value.
Outstanding investors don't wait until the crisis is over. Things will stabilize again before I buy anything. Because when the clouds clear, when the credit taps open again and people are no longer afraid, those bargains will have long since vanished. Emotional security, rarely accompanied by exceptional returns, knowing when to be apprehensive while others are excitedly running the tap, and having the courage to pick up the gold buried under rubble while others flee.
That is the biggest lesson , the ultimate goal of understanding cycles. The cycle will never disappear. Because human greed and fear are eternal. Our task is not to accurately predict tomorrow, but to be aware of where we stand within that flow. To know when to set sail and when to drop anchor. Thank you, listeners, for accompanying us through the ups and downs of the market.
I hope you always keep a cool head. The ability to see through noisy crowds and always find opportunities in unexpected places. Hello and goodbye.
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