“There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive revive of those who do not have the insight to appreciate the incredible wonders of the present.”

 

People occasionally believe that history won’t repeat. When things go well, people tend to think the good times will continue forever. Howard Marks, an investor who has made a fortune off his knowledge and understanding of market cycles, insists that “not much time has to have elapsed since the last correction before cyclical history is overlooked in its entirety.” Society moves so fast that we are often so occupied with doing what it takes to survive that we don’t have the flexibility in our lives nor the wherewithal to step back from our immediate responsibilities to really soak in what’s going on behind the scenes in our society. And more importantly to ask WHY.

Markets contain psychological cycles and financial cycles. Both work together without end. Not only do they work together, one leads to the other. For example, when government sponsored organizations make statements like “mortgage lending is safe” then lower rates to irresistible lows, prospective home buyers are likely to take the leap to live their American Dream because mortgage brokers will be incented to swarm their clients to encourage them to sign the loan docs which will give their real estate broker more incentive to push them to sign a purchase agreement. This type of messaging took place in the early 21st century. The American Dream was made feasible and believable, the psychology of home buyers improved, word spread and, not long after, the market shifted from being pessimistic to filled with hope — there was a strong demand for homes coupled with easy and safe access to money. All of which started from just four words from the leaders of our society : mortgage lending is safe.

People’s decisions often fail to take into account what others around them are doing. This  gap in decision making is what allows for control over a markets psychological and financial cycles by the higher level decision makers of our society. The average American is under so much pressure that when we’re told to jump we all jump in unison, not wanting to fall behind the other’s who are also told to jump. The irony is we fall behind those who are telling us to jump; if not behind them within their plan.

Think outside of your circumstances, in good times and during down times. Appropriately position yourself to take advantage of the rhythmic cyclicality that has been taking place since the early 1900s or else your predictable decision making, multiplied by millions of others who think the same way, will become the yellow brick road to someone else’s American Dream. It is challenging to abandon certain qualities of comfort but become more frugal with your budgeting, cut unnecessary weekly or monthly expenses and save for when the time is fiscally responsible to spend. In real estate especially, it can take 30 years, or the entire term of your loan, to break free from a purchase made at the wrong time. Think deeper and consult professionals you trust before making a decision that can significantly impact your future.