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Cycles

Value investors view the economy and all industries as cyclical. They know that there are times when each industry shines and analysts predict continuing strong growth for the foreseeable future. Then, as sure as night follows day, the industry overexpands, growth falters, profit margins contract, and stock prices plunge. Eventually weaker players drop out, the excess capacity is absorbed, demand picks up, and the cycle repeats.

Value investors don't try to predict the timing of these cycles. They don't know whether the market is heading up or down. They don't know which way interest rates are heading, and they ignore analysts' buy/sell ratings. They don't know if all of the bad news is already built into a stock price, or if further disappointments will drive the share price down even further.


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