The psyche of investors versus the reality of investing is sometimes a wide gorge. Ask a group of investors during a strong market if there is a recession on the horizon and the answers are generally “No” or “We’ve learned to anticipate and correct” or “The causes of a recession are fixed and under control.” Ask a group of investors during a recession if we will recover from the current recession and most will be skeptical, show-me types who don’t see getting out of the recession.

Our economy has always had recessions and has always gotten out of them. Our economy is made up of actions and reactions. We live in free markets that buy, manufacture, invest, liquidate, hire, fire, etc. Because it is impossible to achieve economic balance between all of these activities, our economy will always be out of balance and therefore always cyclical. We are either going up, down, or sideways. Following is a look back at these cycles and guidelines for real estate investment.

Number Of Months From Peak-To-Peak of Each Business Cycle Since 1900

Information Source: Nat’l Bureau of Economic Research, Inc.
An investor needs three pieces of information for developing a reasonable investment strategy and the chart provides this information: (1) The average length of time from peak-to-peak for the prior twenty-one cycles is 58 months. (2) The current business peak was reached in March 2001. (3) We are presently 78 months into the current cycle. What have we concluded so far?

• Given the country’s current economic model, the economy is cyclical.
• Bull markets don’t last forever.
• Recessions don’t last forever.
• The average cycle for the past 100 years from peak-to-peak is 58 months.
• The peak for the current cycle was March 2001.
• We are 78 months into the current cycle.

This information gives an investor the next possible peak and the length of time needed for the subsequent peak. The average is 58 months. The shortest peak-to-peak business cycle is 17 months and the longest is 128 months. Given those conclusions, the real estate investor has to follow a sound investment strategy which includes techniques that insure staying power.

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