Secular Market
Categories: Investing
Luck can come and go. You win five hands in a row at blackjack...you’re feeling pretty good. But then you lose the next six, and your down a little from where you started.
Other times, you’ve got things wired. You figured out an angle, or get good at counting cards. You can consistently make money indefinitely...at least until the pit boss catches you and zaps you with the cattle prod.
Secular markets are like the card counting example. They represent situations where the market is primed to move in one direction for a long period of time. Conditions are such that the bull market will keep on going for a long time. Or, if it’s a bear market, the declines could persist into the foreseeable future.
The opposite situation is known as a cyclical market. That's the up-and-down market...good and bad times come and go as the situation dictates.
Think about a ski resort. Money comes in during the winter. Not much happens in the summer. Cyclical changes. The amount of money is dictated by the cycling of the seasons. But then a famous, gold medal-winning skier announces that your ski resort is their favorite place to ski. It sets up long-term growth in your business. There's still the seasonal nature of the business, but every winter, you see more and more customers. You use the Olympic skier in your advertising. The extra money you bring in gets reinvested into better amenities, which draws even more attention. Eventually, you even build a golf course, so your summer business improves as well.
That situation exemplifies secular growth: conditions set up for continuous, long-term success.
Related or Semi-related Video
Finance: What is a secular trend?13 Views
finance a la shmoop what is a secular trend well people don't read the
newspaper on paper anymore people die older Americans smoke less and yeah [Man reading newspaper]
maybe that's related to the dying older thing Americans text while going to the
bathroom a whole lot more it's more than they did 20 years ago [Man with phone in bathroom]
these are all secular trends meaning people will likely text even more while
they're going to the bathroom in the future [Man using smartphone]
all right well things that are happening quote forever unquote I eat not just in
a short-term cycle like an economic cycle like the decline of the economy's [Economic cycle appears]
growth is cyclical not secular and unless you believe we're gonna be nuked
by North Korea then oh yeah probably decline is secular but assuming the no [Missile explodes]
nuke solution the economy grows few percent a year then dips for a percent
in roughly seven or eight year cycles its approximated by the stock market
cycle in more or less why does all this matter cyclical versus secular well with
your stock market investor hat on a cyclical bet it's kind of like a white [Man puts stock market cap on]
mark on a bike tire it's gonna roll up up up and then down down down in a cycle
such that it won't doesn't really go anywhere over time like the paper and
pulp industry it kind of just stays flat but you can double your money triple [Cash piles appear]
your money if you buy it right at the bottom of the cycle and then sell it
right at the top of it right that's a cyclical bet and you can think airlines
well over time yeah they too don't really get all that more valuable but if [Aircraft lands on runway]
you buy them right like just when the New York Times is declaring that
whatever West Airlines is certain to now go bankrupt and then sell them when the
New York Times declares that whatever West Airlines is certain to be the next [Man reading newspaper]
Google yeah you'll have quote ridden the cycle unquote nicely there's a good coin
to be made from here to here but a secular trend is different like one
thesis might be while the world's getting hotter so people will want to [Man discussing secular trend]
drink more liquid that's a bullish secular trend for Coke and Pepsi or you
might notice that the internet along with Skype or Google Hangouts has made
where you live not nearly
as important as it used to be so there's a secular trend to live wherever [New York Times Square appears]
you want and that might mean a mass exodus away from the high tax expensive
to live in blue states to the cheaper red states secular long-term non
cyclical and yeah just to watch out for those nukes [Nuke with north korean flag on it appears in the sky]