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Multi-Asset Investing: A practical guide to modern portfolio management by Yoram Lustig

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15. Economic cycle

Under the fundamental approach, research into the economics of markets aims to identify relative value opportunities across markets and investments. Different investments are expected to perform well or poorly during different stages of the economic cycle (business cycle or market cycle).

Four stages of the economic cycle

The economic cycle has four main stages:

  1. Expansion
  2. Slowdown
  3. Recession
  4. Recovery

The stages are defined by change in GDP (i.e. GDP grows during expansion and contracts during recession). It is difficult to know which stage the economy is in, which stage it is heading towards and whether the cycle is going to evolve as expected. It is most difficult to forecast the inflection points in the cycle. ...

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