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How Can I Make Money by Understanding Business Cycles?

How Can I Make Money by Understanding Business Cycles

Business Cycles – Overview

If there was one thing about understanding business cycles is that you make money by being an entrepreneur who is the first mover. You start the cycle. Never come in at the tail end.

The bitcoin bubble may have ended. Was it a temporary glitch or will it go the way of the dot com bubble? Time will tell.

When you are inside a tornado you can’t predict exactly when it will end. Every product or service has a life cycle.

The public seems to always invest too late, in hyped up products they do not understand. After a few people make money in something, it doesn’t matter what it is, the early entrepreneurs seek and get publicity. 

They do repeat performances. The next thing that happens is a deluge of imitators. The early ones usually do OK, but never as well as first.

Then all the latecomers to the party. They are seeking easy money and big returns with no work. They are suckered in by conmen and scammers as passive investors in “red ribbon deals, too good to be true…” 

Sometimes the scammers even believe their own hype.

The “investors” usually lose their shirts. Why? Read on…

Real Estate Industry – Business Cycle Example

Imagine this scenario. There are no new office buildings in a town for 15 years since the last boom and bust.

The business cycle begins…

Year 1

One new office building is built by an innovator, entrepreneur who sees the need for modern new office space and fills it. His building or “product” is a big success filling up with tenants immediately.

Year 2 & 3

Ten new buildings are built by imitators. They are moderate successes.

Year 5 & 6

Hundred new buildings are being built with eager investor money from the public. 

They expect the returns gained by the first mover but they won’t get it because they went into an already saturated market.

Result? Projects of the latecomers stand vacant. The business cycle ends.

No new buildings for the next 15 years. Then, the cycle begins again with new players.

Final Thoughts

In short. Substitute bitcoin mining, new crypto public offerings. Fracking, anything suddenly popular in this example and presto. You can see the next business cycle with easily predictable results.

The general public always invests too late, at the end of the cycle or bubble.

The hyped-up products they do not understand don’t work out and they can’t figure out why.

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