Episode Details

Before we begin today’s piece, if you should happen to be in the Scottish neck of the woods this August, I am doing one of my lectures with funny bits at the Edinburgh Fringe this year.

This one is about gold. It has got Greek gods, interstellar collisions, heists and Nazis. What more you could want in a show?

It’s from August 4th to 20th at 2pm. Please come if you are in town- you can get tickets here.

Plus an added bit of history: it takes place in the room in which Adam Smith wrote Wealth of Nations.

Hopefully, I will see you there. So cycles …

‘The wheel is come full circle,’ commented Shakespeare’s Edgar on the carnage that surrounded him at the end of King Lear. The notion of a wheel of fortune is one that has pervaded since antiquity. There are good times and bad times. There are bull markets and bear markets. There is boom and bust, something Chancellor Gordon Brown said he was going to eliminate.

Whether it’s the seasons of the year, the moons, or the inevitable ageing process and the cycle of life - what Shakespeare called “the Seven Ages of Man” - it’s clear that there are recurring patterns to the world around us. There are even recurring patterns in the length of women’s hemlines. Anyone who has been involved in business for any significant amount of time will know that markets never go up for ever, but are subject to the same cyclical movements. 

Commodities are very prone to cycles, so called secular bull markets or super-cycles. In 1947, Edward R. Dewey and Edwin F. Dakin published a book called Cycles - The Science of Predictions. It’s now out of print, but Dewey and Dakin noticed a 54-year index cycle in wholesale prices – in other words commodity prices  - going back to 1790. Based on this they made projections for the future. They called it the 54-year "Rhythm".

Their forecasts were pretty accurate. The 1980s and 90s were a clear secular commodities bear market. The 2000s a clear secular bull. The 2010s another secular bear. The 2020s? A bit of everything.

Thinking in basic terms can be an effective way of investing: are we in a bull market or a bear market? How long does this bull/bear market have to run? Find a bull market and go long. That’s all you need to do really as an investor. There’s no point picking brilliant stocks, if the sector they are in is in a bear market.   

Mining companies themselves, go through clear cycles – perhaps phases is a better word – from exploration and discovery, through development and mine building, to actual production. New technology goes through a clear cycle as it evolves, which research firm Gartner dubbed the hype cycle.

Look at what happened with Dotcom and the internet: from invention to excitement and bubble to collapse to mainstream adoption. Felix Dennis in his book How To Be Rich talked about “riding the wave”: getting into a new growth area early and then surfing to riches. 

Thinking in terms of cycles can help you to frame the bigger picture. It can give you an idea of where you are in the grand scheme of things. We like reading about cycles because they bring a veneer of certainty, clarity, security and comfort, where there is, in fact, often none. But most of us have a slightly superstitious streak, which means we can be vulnerable to cycles narratives, too easily persuaded by them and too easily wedded to t