The book was written in 2004 and predicted that the market would peak in 2008. It was alarmingly accurate so far. If the author is right, we would be in the bear market for the next 7 years.
At times, the author sounds like a prophet to me, drawing relations from Bible, Chinese Zodiacs and astronomical phenomenon. I felt a little discomfort on that portion. To reinforce his theory, he eventually backed up with statistics and real life events, which makes it more credible thereafter. It is clear that he believes cycles are brought about by fundamental changes and can be analysed by technical means.
Being a technical analyst, he did well in highlighting the important attributes and values a trader must possess in such a concise book.
Definitely, I would be operating my radar to sense the presence of the Joseph Cycle from now on. Taking heed the important years where the Cycle tops – better to be safe than sorry.
The origin of Joseph Cycle
The author, Simon Sim, through his observation of long-term cycles in markets and research, discovered the oldest business cycle on record – ‘seven rich years and seven lean years’. It is recorded in Genesis, Bible, and Joseph was the person who proposed the existence of cycles. Joseph had the ability to interpret dreams to foretell the future. One day, the Pharaoh of Egypt had disturbing dreams in 2 consecutive days. In the first, he dreamt about 7 fat cows grazing the grass and thereafter, 7 lean cows devoured the 7 fat cows. In the second, he dreamt about 7 full ears of corn and later, 7 thin ears of corn swallowed the full ones. Joseph interpreted, “…there will be seven years of plenty in all the land of Egypt. After that there will be seven years of famine…”. The dreams being similar, suggests the situation will be repetitive. “Cycles are repetitive. Being repetitive means they are predictable and therefore have a high forecasting value.”
Spectrum analysis to determine cycles
Spectrum analysis is a statistical method to break down complex time series into cyclical pattern. The average cycle length of inter-related economies:
- US and HK = 13.6 years (approx 14 years)
- US, HK and Singapore = 7 years
- HK, Japan, Malaysia and Singapore = 3.3 years (approx 3.5 years)
Based on the rule of Harmonization, two 3.5-year cycles coincide with one 7 year cycle. Two 7-year cycles coincide with one 14 year cycle. Based on the rule of Dominancy (where US is the dominant market), HK and Singapore follows the 14-year cycle.
Jospeh Cycle’s presence in Singapore
The 7-year Bull runs in Singapore
- 1974 to 1980 (end of bull = Iran-Iraq war + Oil andi nflation rate crisis)
- 1988 to 1994 (end of bull = Interest rate crisis + Bond market collapse)
The 7-year Bear runs in Singapore
- 1981 to 1987 (cycle bottom = Black Monday, Global stock market crash)
- 1995 to 2001 (cycle bottom = World Trade Center collapse)
The next bull run: 2002 to 2008; and next bear run: 2009 to 2015.
Harmonizing the cycles, we have 56-year convergent cycle (7 to 14 to 28 to 56). Starting from the year that Singapore was founded, for every 56 years, there had been a major financial crisis.
- 1875 – British financial crisis
- 1931 – Great Depression
- 1987 – Global stock market plunge
Thus, extrapolating another 56 years, investors have to beware of 2043.
What should investors do?
With knowledge of the presence of cycles and the cycle tops + bottoms, investors should
- Save during the 7-year bear cycle (“wealth is a function of saving and investment”)
- Buy during bottoms, at the start of the 7-year bull cycle
- Hold and ride the uptrend (“let your money grow in Cycles”)
- Sell before market reverses to the 7-year bear run and start saving again
It seems common sense but it is easier said than done. Even during the 7-year bull run, there will be smaller up and down cycles where investors have to ride through. Weak minded investors are likely to sell during such mini bear periods (due to fear). “A trend is not a lovely straight-line. Before it reaches the top, it swings you left and right like a pendulum. If you get dizzy, you give up.” Thus, the author advises investors to focus on the bigger picture – the 7-year bull cycle, and hold to the end of it.
On the average, a person will only have 2 opportunities to take advantage of the Joseph Cycle (buy at the Cycle lows) in his/her lifetime. Thus, investors have to take the opportunities at the right time.
- 14-year cycle time period may not be exact, there maybe a slight deviation from it
- Cycles tell us when to buy, but does not tell us what to buy. Thus, investors must do their homework and research.
- Manage your psychology: do not succumb to greed or fear. The advice for investors who cannot manage is to allow professionals to manage their investment.