Trying to time the stock market is a fool’s errand. It simply just doesn’t work. High quality peer-reviewed financial studies show that active investing via market timing cannot be predicted at a rate greater than that predicted by pure luck. Therefore, I don’t try time the market. Instead, I invest my money passively via index funds according to my selected asset allocation. However, I do think it can be useful to think about where the market cycle is at any point in time.

So what is the difference?

Let’s try to explore as we also discuss the market cycle and where we stand within it right now.

What is the market cycle?

Every market has a fairly cyclical cycle associated with it. And each part of the cycle more or less has reliably followed one another in order.

The cool thing is that pretty much any market that you can name follows this same cycle. Whether it is the stock market, the real estate market, even the NFL free agency market.

But for the purposes of this post, we are focusing on the stock market.

Here is what it looks like

As you can see from the graphic, each market will swing from a high point associated with euphoria to a low point of anger and depression. There are of course moments in between with their associated emotions as well between these peak and nadirs.

Now, the duration of each stage within this cycle can vary. But, invariably, each stage will pass on to the next at some point.

Why does the market cycle matter?

Warren Buffet famously said, “Be fearful when others are greedy and be greedy when others are fearful.”

The makes sense. Because when others are greedy in a bull (high) market, you should be cognizant of the downturn to come. And when others are fearful because the market is down and bearish, you know that the upswing is just around the corner (at some point).

This is what the market cycle teaches us.

By being greedy when others are cautious, you are buying into the market at a low. By doing so, when the market upswing inevitably comes, you will see a great rise in value of the assets you bought. Conversely, by not buying or selling when others are greedy, you are selling an asset at its top value before an inevitable downswing.

Follow this strategy and you will be buying stocks low and selling them high. That is the recipe for success!

But…of course there is a but…

What I just described above is market timing. And I opened this post by emphatically declaring (based on evidence) that market timing just does not work.

And the reason for that is because, although the market cycle is predictable, we don’t know when one stage will pass into the next. We know that it will. Eventually. But we just can’t predict when it will happen.

This time variance is what makes it impossible to predict and time the market successfully.

How can the market cycle help us as investors?

I don’t think that paying attention to the market cycle helps us in a nuts and bolts, logistical, or functional way.

What I mean by this is that I don’t actually change my investing plan based on where I believe the market cycle is at any point in time. Because, even if we are at the nadir, I can’t say or predict based on any factors how long we will stay in that stage. Even more of an issue, when I perceive we are at a high point, I don’t know how long that will last to either stay out of the market or sell.

But it does still matter on a different level…

The biggest decider in investing success or failure is not in the nuts and bolts, in my opinion. Once you know how to buy an index fund, set your asset allocation and rebalance, you really know the 20% of investing that will get you 80% of the results (classic Pareto Principle).

The biggest factor in your investing success is your investing behavior. This means:

• Not selling when the market is down and you are fearful
• Not jumping at “hot” investments at their peak when the craze surrounding them is at an all time high

If you can avoid those two behaviors and stick to your written investment plan throughout the market cycle, you will have success and reach financial freedom.

And understanding the market cycle helps you avoid these two major mistakes

When others are going crazy because the market is high and buying more shares of the ARK fund because it “just keeps going up,” you can avoid that temptation knowing a dip is somewhere to come.

Conversely, when the market is down and the sky is falling and everyone is yelling to sell, you can keep investing according to your plan knowing that the shares of the overall market (via index funds) that you buy now will probably be the most valuable in the long run.

This is why it is helpful to understand this natural process of any market.

What stage of the market cycle are we in now?

I believe that we are currently in the complacency stage of the market. We are past the thrill and euphoria stages that followed some minor bear markets. Over the past months and year, we have been seeing some great gains in the overall market.

So much so that we are starting to think it is normal. I even find myself, despite not normally concerning myself with the short term fluctuations of the stock market, disappointed and a bit surprised when a week ends with an overall dip.

And this is a sentiment that I feel from a lot of fellow investors. I believe we are complacent.

Plus I think we are about to see some changes in the economy that will temper the growth we have seen. In 2025, I think we will still have gains but a bit less than we are accustomed to.

And rest assured, the down market and dips will return…

It’s a natural part of the process. Don’t fear it and hope it never comes.

All you can do is create your written investment plan (like mine here) so that it can tolerate those dips and reflects your risk tolerance appropriately.

This concept is translatable to other markets

I’ll leave off by just reiterating that this process is natural to just about any established economic market. It applies to real estate, bonds, and other traditional markets.

It’s hard to say in newer markets like crypto which I think are best avoided.

Overall, being an educated investor means understanding concepts like this as well as others like beta, which can seem academic but ultimately will help you hone your behavior to be the best investor you can be and optimize your path to financial freedom!

Here are some additional important resources to help you build this path and improve your financial well-being as a doctor:

• Help! I’m a High Income Physician But Scared to Invest
• The 7 Biggest Financial Enemies of Doctors
• Is a 401k Worth It Anymore for Doctors?
• What’s Better? Should You Pay Off Debt or Invest?

What do you think? What stage of the market cycle are we in now? How does this impact your investing strategy? Let me know in the comments below!