Saturday, March 9, 2013

Axiom 32: Everything is Cyclical

"What goes up, must come down." -Proverb

"What goes around, comes around." -Proverb

I work in the commodities markets so I've seen booms and I've seen busts. I've learned that everything is cyclical. You always have to anticipate the next step in the cycle otherwise you'll always be playing catch up.

You should be buying when everyone is selling. You should be selling when everyone is buying. Always run the opposite way of the crowd. Don't be afraid to do the opposite. People that never takes chances never make big profits.

Products follow a very predictable cycle. If you can anticipate this cycle you won't be caught off guard.

This is the life cycle that every product follows:
  1. A new product is born - People buy it because it fills a need and solves a problem they have. There is a lot of money made from the sales of this new product and the businesses and people that sell this product usually make huge profits.
  2. Other people and businesses copy the original product - People want to cash in on the success of the original product so they come up with something similar to compete. Market share is split and profits go down for everyone.
  3. The market gets fully commoditized - More copycats sell a similar product to the point that the market gets crowded and profits get smaller. Some companies go out of businesses because they can't compete.
  4. The product dies or is reborn - Usually sales of a product eventually drop off as new, better products enter the market. These new products begin their own product life cycle. The only hope for an older product to survive is to be "reborn" in some way that it is made like new again.
The life cycle of a product can make you a victim or make you a winner. Watch for these signs in the market and take advantage of them before others do.