What must I know about business cycles when investing? - Seedly
 

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Asked by Anonymous

Asked on 07 Mar 2019

What must I know about business cycles when investing?

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Yeo Enk Loui
Yeo Enk Loui
Level 6. Master
Updated on 07 Jun 2019

Hi!

Answered a similar question here: https://seedly.sg/questions/what-do-we-need-to-know-before-buying-a-stock so do check it out if you want to find out more.

To illustrate further, here's a diagram to help you understand better!

These are the industries that you can potentially look at, before deciding which stocks to buy (at different stages of the business cycle).

Hope that helps!

2 comments

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Question Poster

10 Mar 2019

Hey just curious- why does the energy sector do well only towards the end of the expansion cycle?
Leonard Tan
Leonard Tan

10 Mar 2019

Hey there! I believe it could be due to two factors. Mainly- energy prices follow inflation and therefore prolonged periods of expansion tends to cause inflationary pressures which drives energy prices up. Secondly, increased production in industrials could also drive demand for energy up to bolster prospects of energy industry.
Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Answered on 07 Mar 2019

I think one important thing to look at is how the financial metrics differ across different stages.

For example, negative profitability and cashflows might be expected for companies in its Launch stage, as shown by the image, because the company hasn't reach its break even point, and has high marketing and capital expenditures relative ot its sales. Whatever cashflow is reaped is also ploughed back into the business for growth.

For a company in its mature stage, negative profitability and cashflows might be bad signs since it could signify that the company is slowly dying out and is not able to adapt to changing market trends.

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