Investing Through Changing Market Cycles
Investing Through Changing Market Cycles
By Mr. J. Oliver, CPA, CFA, MBA
Chief Executive Officer, LIAM
It is easy to feel comfortable with an investment strategy when markets are rising. The real test comes when conditions change—when prices fall, confidence weakens, and decisions that once seemed straightforward become harder to make.
At those moments, investors often feel pressure to do something. Sell a position. Move into cash. Buy what has fallen. Wait for greater certainty.
Any of those decisions may be appropriate. What matters is the reasoning behind them.
At LIAM, we believe investing through changing market cycles begins with understanding what you own, why you own it, and whether it still serves your objectives. That sounds simple. Maintaining that clarity under pressure takes discipline.
The economy and the market do not move together neatly
We often describe economic cycles as expansion, slowdown, contraction, and recovery. These descriptions are useful, but investing would be much easier if each stage announced its arrival.
It does not.
Markets respond to expectations, sometimes well before changes appear in economic data. By the time an improvement feels obvious, prices may already reflect considerable optimism. Equally, a difficult economic backdrop does not mean every investment is poorly positioned.
I find it more useful to ask what a portfolio can withstand than to make its success depend on calling the next turning point correctly.
If growth slows, where are we exposed? If borrowing costs remain elevated, which investments become vulnerable? If conditions improve, do we have room to participate?
These questions give investors something practical to work with, even when the outlook remains uncertain.
Start with what the money needs to do
Before discussing opportunities, we should discuss obligations.
A family may need capital for living expenses, a business acquisition, or the next generation. An institution may have regular distributions and commitments that must be met regardless of market conditions. An entrepreneur may already have substantial wealth tied to one company or industry.
Those circumstances belong at the centre of the investment discussion.
Money needed in the near term should be considered differently from capital that can remain invested for years. The appropriate allocation depends on the investor’s time horizon and capacity to absorb losses—principles also reflected in Investor.gov’s guidance on asset allocation.
A strategy can look compelling on paper and still be wrong for the person holding it.
Read beyond the investment presentation
My training in accounting, investment analysis, business administration, and corporate law shapes the way I approach an opportunity. I want to understand the business economics, the quality of the financial information, and the terms governing the investment.
Where does the cash come from? How much debt must be refinanced? What assumptions support the valuation? What rights does the investor have if performance disappoints?
These details can seem less pressing when capital is readily available and markets are forgiving. They deserve attention throughout the cycle.
For private investments in particular, the agreement matters alongside the financial forecast. Restrictions on withdrawals, reporting obligations, governance provisions, and the position of an investor within the capital structure all deserve careful examination.
An attractive projected return is the beginning of the analysis.
Know where your risks overlap
Owning a long list of investments can create a reassuring sense of diversification. But several holdings may depend on the same economic conditions.
A property investment, a private lending position, and shares in a leveraged business may look different on a statement. All three may be sensitive to financing costs and access to credit.
That is why we need to look beyond the names of the assets and consider what drives their results.
Diversification can help spread risk, but it cannot guarantee protection from losses. Its usefulness depends in part on how investments relate to one another. Investor.gov discusses diversification both across and within asset classes.
The practical question is straightforward: if one part of the portfolio comes under pressure, what else might struggle for the same reason?
Give yourself room to make decisions
Liquidity rarely receives the attention that potential returns do. Yet access to capital can make an enormous difference when circumstances change.
Investors need to consider expenses, distributions, capital calls, and unexpected demands before committing funds to investments that may take time to sell.
There is also a human benefit to having adequate flexibility. Decisions are harder when a payment is approaching and the only available option is to sell something at an unfavourable time.
That does not mean holding excessive cash indefinitely. It means making a deliberate decision about how much accessible capital your circumstances require.
A lower price deserves a closer look
When markets fall, opportunities may emerge. But a lower price alone tells us very little about value.
Sometimes a good business becomes available on more attractive terms. Sometimes the decline reflects a lasting deterioration in its prospects.
The work is in distinguishing between the two.
Has the business lost customers? Has its debt become difficult to service? Are margins under temporary pressure, or has its competitive position weakened? Does the original investment case still hold?
The same scrutiny belongs in rising markets. A business can perform well while its shares become too expensive for the risks involved.
Price matters. So does what we are paying for.
Be patient, and remain willing to change your mind
Patience is valuable when it rests on sound reasoning. It becomes costly when it turns into an unwillingness to acknowledge new facts.
A long-term investor should be prepared to revisit assumptions, reduce an exposure, or exit a position when the evidence warrants it. There is no virtue in defending an old decision simply because it was once convincing.
At the same time, every difficult week does not require a new strategy.
The challenge is to distinguish ordinary market discomfort from a meaningful change in the investment itself. A consistent review process helps make that judgment less dependent on the mood of the day.
For me, that is the heart of investing through changing market cycles: doing the analytical work, keeping commitments and liquidity in view, and making decisions you can explain clearly.
We cannot control the next market move. We can take responsibility for how we prepare for it.
Mr. J. Oliver, CPA, CFA, MBA
Chief Executive Officer
LIAM | LI Investment Advisory & Management Services
Disclaimer: This material is provided for general informational purposes only and does not constitute investment, legal, accounting or tax advice, nor an offer or solicitation to buy or sell any investment or financial product.