Up and down. That’s how you can describe real life in three words. But instead of accepting that life is cyclical, and that bad times are normal, we expect that we should always be on an upward cycle.
Almost everything we do involves other people. And because we’re emotional and inconsistent beings, outcomes are not consistent. Value investor and author of The Most Important Thing, Howard Marks explains this concept as follows:
“Mechanical things can go in a straight line. Time moves ahead continuously. So can a machine when it’s adequately powered. But processes in fields like history and economics involve people, and when people are involved, the results are variable and cyclical.”
We can extend that conclusion to life in general. I can’t think of a human process that’s not cyclical. Take personal energy. It would be great if our energy would be consistently high, wouldn’t it? But most of us have days we feel great, and we have days we feel like a bag of potatoes.
My aim with personal energy is to be as consistent as possible. I would rather be at 80% of my full energy potential every day instead of being 95% one day and 30% the next.
There is only so much within our control. And even if we work with things that are inside of our control, we still can’t control everything. Again, personal energy is a perfect example.
You can have a balanced lifestyle with enough sleep, nutritious food, and regular exercise, but still, you will have days you lack energy. Why is that? No one knows. The human body and mind are not like math. But this is something we don’t appreciate enough in life.
Measure the temperature
When Howard Marks talks about market cycles, he clearly states we can’t predict the future. Just because the market is going up for X years, it doesn’t mean that next year it will go down. You can’t extrapolate trends.
Understanding cycles will only help you to understand where you are now. When it comes to investing, Marks recommends to “figure out where we stand in terms of each cycle and what that implies for our actions.” Here’s what a market cycle looks like:
Let’s say that the market is currently in a Euphoria state. Does that mean it’s close to an Anxiety state? No one knows how long the current state will last. So we can’t make predictions.
But we must know where we are in the first place. When we’re aware of what’s going on around us, we won’t be battered around by our surroundings. That’s one of the key strategies value investors use. And I think we can apply it to life in general. Here are a few examples:
- Businesses—How long have you been in business? How many people in your industry are aware of your business? What’s the state of your industry? Is your product/service widely accepted? Or is it still considered as an innovation that’s not for everyone? How mature is your market?
- Careers—How many years of experience do you have? How big is your network? How much knowledge do you have? Is your skill still relevant in the economy?
- Energy—How do you feel? Do you have any big injuries? What does your lifestyle look like? Do you use drugs? Do you drink alcohol? What season is it? Do you feel tired in the winter?
Everything is cyclical. Some businesses grow fast and bust quickly. Other businesses grow slow and never experience any exponential growth. Most jobs become irrelevant at some point. Some days, weeks, or months, you might feel weak. Or you might feel strong for years in a row and never get injured or ill.
But nothing will remain the same forever. None of the above questions and implications means you can predict the future. If you’ve been feeling low on energy for the past four weeks, it doesn’t mean you will automatically feel better next week. It also doesn’t mean you’ll feel worse.
Use cycles to make your decisions
Understanding where we are in a cycle helps us to make better decisions. When you’re low on energy, you want to preserve it and avoid actions that drain you. When you’re spread too thin, you want to take a step back, you don’t want to start a new project. Because what happens if you do that? You might burn out.
I’ve been using cycles to make career decisions as well. When I started my blog, I tried a lot of different things. I created different types of content, changed the design of my site, covered all kinds of topics, used different media channels, and so forth.
In the beginning of the cycle, I said yes to everything. But 4,5 years later, I’m more focused on specific actions. I say no to more things. For now, that helps me to build something very specific. Later in the cycle, that might change again.
The main lesson I learned is that nothing in life is static. We must respect the cyclical nature of life. And when we’re aware of where we stand in the cycle, we can make better decisions.
While there are a lot of ups and downs, understanding cycles will make you less susceptible to those changes. In fact, when you make good decisions, cycles will work in your favor.
That’s how value investors like Warren Buffett and Howard Marks weren’t affected in the financial crisis of 2008-2009. They realized where they were in the cycle and adjusted their actions.
If we do the same for every aspect of our lives, we can thrive when cycles go up and down.