Acknowledgements xiii
About the Author xvii
Preface xix
Introduction 1
Part I: Lessons from the Past: What Cycles Look Like and What Drives Them 9
Chapter 1: Riding the Cycle under Very Different Conditions 11
Chapter 2: Returns over the Long Run 29
Returns over Different Holding Periods 31
The Reward for Risk and the Equity Risk Premium 35
The Power of Dividends 38
Factors That Affect Returns for Investors 41
Market Timing 41
Valuations and Returns of Equities versus Bonds 43
The Impact of Diversification on the Cycle 45
Chapter 3: The Equities Cycle: Identifying the Phases 49
The Four Phases of the Equity Cycle 50
Mini/High-Frequency Cycles within the Investment Cycle 58
The Interplay between the Cycle and Bond Yields 61
Chapter 4: Asset Returns through the Cycle 63
Assets across the Economic Cycle 63
Assets across the Investment Cycle 66
The Impact of Changes in Bond Yields on Equities 68
The Point of the Cycle: Earlier is Better 72
The Speed of Adjustment: Slower is Better 74
The Level of Yields: Lower is Better 74
Structural Shifts in the Value of Equities and Bonds 76
Chapter 5: Investment Styles over the Cycle 81
Sectors and the Cycle 83
Cyclical versus Defensive Companies 85
Value versus Growth Companies 90
Value, Growth and Duration 92
Part II: The Nature and Causes of Bull and Bear Markets: What Triggers Them and What to Look Out For 97
Chapter 6: Bear Necessities: The Nature and Shape of Bear Markets 99
Bear Markets Are Not All the Same 100
Cyclical Bear Markets 106
Event-Driven Bear Markets 107
Structural Bear Markets 109
Interest Rate Cuts Have Less Impact on Structural Bear Markets 111
Price Shocks: Deflation is a Common Characteristic 113
Belief in a New Era/New Valuations 113
High Levels of Debt 114
Equity Market Leadership Becoming Narrow 114
High Volatility 115
The Relationship between Bear Markets and Corporate Profits 115
A Summary of Bear Market Characteristics 117
Defining the Financial Crisis: A Structural Bear Market with a Difference 118
Finding an Indicator to Flag Bear Market Risk 119
Typical Conditions Prior to Bear Markets 121
A Framework for Anticipating Bear Markets 124
Chapter 7: Bull's Eye: The Nature and Shape of Bull Markets 127
The 'Super Cycle' Secular Bull Market 127
1945-1968: Post-War Boom 129
1982-2000: The Start of Disinflation 131
2009 Onwards: The Start of QE and the 'Great Moderation' 133
Cyclical Bull Markets 134
Variations in the Length of Bull Markets 136
Non-trending Bull Markets 138
Chapter 8: Blowing Bubbles: Signs of Excess 143
Spectacular Price Appreciation . . . and Collapse 146
Belief in a 'New Era' . . . This Time is Different 150
Deregulation and Financial Innovation 157
Easy Credit 160
New Valuation Approaches 161
Accounting Problems and Scandals 163
Part III: Lessons for the Future: A Focus on the Post-Financial Crisis Era; What has Changed and What It Means for Investors 167
Chapter 9: How the Cycle Has Changed Post the Financial Crisis 169
Three Waves of the Financial Crisis 171
The Unusual Gap between Financial Markets and Economies 174
All Boats Were Lifted by the Liquidity Wave 178
The Unusual Drivers of the Return 179
Lower Inflation and Interest Rates 180
A Downtrend in Global Growth Expectations 182
The Fall in Unemployment and Rise in Employment 183
The Rise in Profit Margins 185
Falling Volatility of Macro Variables 187
The Rising Influence of Technology 189
The Extraordinary Gap between Growth and Value 190
Lessons from Japan 196
Chapter 10: Below Zero: The Impact of Ultra-Low Bond Yields 201
Zero Rates and Equity Valuations 206
Zero Rates and Growth Expectations 208
Zero Rates: Backing Out Future Growth 210
Zero Rates and Demographics 215
Zero Rates and the Demand for Risk Assets 217
Chapter 11: The Impact of Technology on the Cycle 221
The Ascent of Technology and Historical Parallels 222
The Printing Press and the First Great Data Revolution 223
The Railway Revolution and Connected Infrastructure 224
Electricity and Oil Fuelled the 20th Century 226
Technology: Disruption and Adaption 226
Technology and Growth in the Cycle 227
How Long Can Stocks and Sectors Dominate? 231
How High Do Valuations Go? 233
How Big Can Companies Get Relative to the Market? 235
Technology and the Widening Gaps between Winners and Losers 238
Summary and Conclusions 241
References 249
Suggested Reading 259
Index 265
