1966: Stock market decreased 20%.
1973: Stock market again 45% down.
1980: Inflation, stock market crash, economic recession happened.
1987: Black Monday in global stock market.
1994: Bond market crashed. Bear market started again.
2001: Technology bubble collapsed, 9.11, economic recession.
2008: Subprime mortgage crisis, stock market crashed, economic recession.
2015: Chinese stock market crashed. It was assumed that more than 200,000 middle class families disappeared and hundreds of people commit suicide because of using leverage.
It is because of investor’s greedy that stock market crashes or drops every time, especially in 2015 the Chinese stock market. At the time some speculators used 10 times leverage to dream to be a millionaire overnight. Economists tried to provide reasonable explanations but till today there is no convincing explanation. The economist who could explain the 7-years cycle probably could win Nobel Prize.
Actually Bible has provided the reasonable explanation already. We could read two verses firstly:
At the end of every seven years, you should grant a release. This is the nature of the release: Every creditor will release his neighbor from the debt he incurred. He should not demand payment from his neighbor or his brother, for it will be proclaimed a release to Jehovah. –Deuteronomy 15:1,2
But in the seventh year, there should be a sabbath of complete rest for the land, a sabbath to Jehovah. You should not sow your field with seed or prune your vineyard. You must not reap what grows on its own from the grain left after the harvest, and the grapes of your unpruned vine you must not gather. There should be a year of complete rest for the land. –Levticus25:4,5
Bible clearly pointed out that economic cycle and land usage cycle is 7 years. In the seventh year, the creditor exempts the debt from debtor. By this way, the poor may have money to consume. At the same time, the seventh year people don’t need to work in the land, which helps land recover. By this way, people get more time to meditate, sum up experience, learn lessons. Thinking of 30-year house loan nowadays, this would squeeze up the last penny of the debtor.
People who have a loan often would regret so much that he did not live in that time, because debtor did not need to pay after certain years. That time is just like communism in legend. But we wouldn’t be optimistic so early, borrowing money without paying back may happen only once in one’s whole life. Because next time nobody would like to loan you again, except your own parents. During that time, even though without credit card, actually, loan is still based on the loaner’s credit.
Why does it have to be 7 years? Probably we are more familiar to the 7-years-fatigue of marriage. It is very common that after 7-years-marriage, the divorce rate increases sharply. It is mostly because after 7-years-period people forgot the initial love in between and forgot the oath to each other. A couple who would die for each other when they dated, now become a stranger to each other, even become enemies. 7 years for some people is just a period, during which people may forget and restart again.
The relationship between Investor and stock market is similar to the couple. Everyday many investors may spend more time to follow up stock market than to be with their spouses. 7 years after stock market crashed, if investors forget the bloody lessons, gradually save more and become ambitious again, then the same painful consequence will happen again.
Everything has its cycle. Act according to the developing cycle of the things. Buy the right stock or fund in right time and sell in right time, then the gain increases. This is so-called taking advantage of the trend.