But to the degree that the business cycle is a separate understandable phenomenon, can’t investors use that understanding to place bets which make them money while dampening the effect?
The theory can tell you that we’re headed for a downturn, but when exactly that will happen is unpredictable, because the system is chaotic and the bubble burst can be triggered by any Schelling point that looks like “uh-oh, time to sell”. E.g. Lehmann Brothers. E.g. 9/11.
If you don’t know whether the recession is coming in a year or three, that’s too much ambiguity to make any money off of it.
Unless you come up with a barbell like strategy that lets you survive till the downturn and then make a large profit when it happens. This I think is what both Ray Dalio and Nassim Taleb claim to have done.
The theory can tell you that we’re headed for a downturn, but when exactly that will happen is unpredictable, because the system is chaotic and the bubble burst can be triggered by any Schelling point that looks like “uh-oh, time to sell”. E.g. Lehmann Brothers. E.g. 9/11.
If you don’t know whether the recession is coming in a year or three, that’s too much ambiguity to make any money off of it.
Unless you come up with a barbell like strategy that lets you survive till the downturn and then make a large profit when it happens. This I think is what both Ray Dalio and Nassim Taleb claim to have done.