In the investment market, various strategies emerge in endlessly. How to choose the appropriate method to leverage and effectively increase the scale of assets is the focus of every investor.
In addition to the ETF investment method that has become popular in recent years, cyclical stocks are also a traditional investment target worthy of attention, especially when the market is volatile.
What are cyclical stocks?
Cyclical stocks refer to stocks whose stock prices fluctuate with changes in the economic climate.
This type of stocks is usually concentrated in traditional industries that are greatly affected by the boom, including coal, oil, natural gas, steel, cement, plastics, shipping, construction and automobile industries.
Since these industries are highly dependent on economic activities, when the economic climate improves, demand surges, corporate profitability increases, and stock prices naturally rise; conversely, stock prices may fall sharply when the economy is in a downturn.
What are the advantages of investing in cyclical stocks?
The characteristics of cyclical stocks lie in their attractiveness at low valuations and their potential for high volatility.
Most of these stocks are dominated by enterprises that are the pillars of the national economy. As long as you maintain confidence in the development of the national economy, when the stock price is at a low due to the recession, it is a good time to buy.
At this time, investors do not need to think too much about short-term fundamentals. They only need to wait for the economic cycle to pick up, and they can obtain considerable capital gains from price fluctuations.
How to grasp the business cycle?
The essence of cyclical stocks is to "buy low and sell high" rather than simply pursuing stable dividend income.
Therefore, when investing in cyclical stocks, you need to pay special attention to the timing of exits, and don't just sit still.
When the boom reaches its peak and stock prices reach overvalued levels, it is time to take profits.
Ignoring this may result in missing the best opportunity to exit, or even suffering losses during the next recession.
If your ability to analyze market trends is limited, or you cannot withstand the violent fluctuations caused by business cycles, choosing mindless ETFs that pursue long-term stable returns may be a more suitable choice for you.
On the contrary, for those investors who have insight into economic cycles and are willing to take certain risks, cyclical stocks are a powerful tool to amplify leverage and improve asset allocation efficiency.
During the investment process, only by understanding your own risk tolerance and planning investment strategies with a rational attitude can you seize opportunities in business cycles and achieve steady growth in assets.
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I am not a stockbroker, and I am not trying to teach you how to invest in any target. I am just telling you that besides just depositing stocks, there are many other investment methods you can use.
If you really have to ask what you are talking about, for example, the limited stock price I posted yesterday, it may be the historically low price of cyclical stocks!
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