February 11, 2025
There’s a timeless wisdom in Ecclesiastes 3 that resonates deeply with investors like me: “To everything there is a season, a time for every purpose under heaven.” These words, written millennia ago and repeated often by me at billcara.com, reflect the rhythmic ebb and flow of financial markets. Just as nature operates in cycles—day follows night, spring follows winter—markets also rise and fall, driven by immutable, but also, at the same time, by human-made forces. Understanding this duality—natural law and intervention—is the key to navigating today’s turbulent investing landscape with clarity and confidence.
Let’s explore how these forces shape your decisions, how to harness their lessons, and why mastering this balance is your greatest advantage.
Part 1: Natural Law—The Invisible Hand Guiding Markets
Natural law in investing is akin to gravity: predictable, relentless, and foundational. Consider a ball thrown into the air, ascending, pausing, and falling. Similarly, markets move in cycles of accumulation, uptrends, distribution, and downtrends. These patterns repeat because human psychology—greed, fear, euphoria, panic—remains constant.
The Investor’s Edge: Aligning with Cycles
- Long-term investors study macroeconomic trends (interest rates, commodity prices, corporate earnings) to identify multi-year opportunities. For example, buying undervalued assets during recessions, as Warren Buffett did in 2008, capitalizes on natural cyclicality.
- Short-term traders leverage technical tools like RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence) to spot intraday or weekly trends. These indicators quantify crowd behavior, turning chaos into actionable signals.
Actionable Takeaway:
Map your strategy to your time horizon.
- If you’re a long-term investor, analyze quarterly earnings and sector rotations.
- If you’re a trader, backtest technical strategies during volatile periods to refine your edge.
Part 2: Intervention—The Wildcard That Disrupts (and Creates Opportunity)
Natural law may set the stage, but intervention writes unexpected plot twists. Governments, central banks, and policymakers wield tools like rate hikes, tariffs, or stimulus packages to steer economies. While often well-intentioned, these actions inject volatility—a double-edged sword for investors.
Case Study: The 2020 Pandemic Response
When COVID-19 struck, global governments unleashed historic fiscal stimulus. Central banks pushed monetary stimulus, slashing rates and flooding markets with liquidity. The result? A swift market rebound defying “natural” fundamentals. Investors who recognized this intervention profited; those anchored to pre-pandemic models missed opportunities.
But Beware: Intervention often sows instability. For example, aggressive rate hikes in 2022-2023 to combat inflation triggered bond market turmoil. My readers recall my words of warning: “Too much. Too fast.”
Actionable Takeaway:
Stay informed, not reactive.
- Follow central bank announcements (e.g., Fed meetings) and geopolitical developments.
- Use volatility as a signal, not a distraction. For instance, sharp selloffs in quality stocks during interventions can be buying opportunities. We’ll see a lot of that in 2025.
Part 3: The Battle for Your Mind—How to Stay Grounded
Intervention isn’t just about policy. It usually comes from the bully pulpit—it’s psychological. Politicians and media often amplify fear or FOMO (fear of missing out) to sway behavior. Natural law, meanwhile, whispers patience and discipline. Your success hinges on tuning out noise and anchoring to principles.
The Danger of “Fast Markets”
In highly volatile environments, investors often:
- Buy high (chasing momentum during rallies in “high-risk buys”).
- Sell low (forced sales but mostly panicking during corrections).
This is the antithesis of natural law. Remember: Markets always revert to mean valuations over time.
Coca-Cola (KO) is a case example that occurred today. Investors are putting on high-risk trades because President Trump signed an Executive Order applying 25% tariffs on imported aluminum. Coca-Cola typically uses this metal. So, the CEO intervened in an early morning CNBC to explain how the company could quickly change to plastic. Investors hopped on the idea and pushed KO up +4.5%, as I write this, to $67.50. The RSI has soared into the 80’s, well above the 70 level that indicates Distribution Territory. Worse is the PE is now 28, well above the long-term annualized PE of 21.0 (per Value Line).
To repeat: Markets always revert to mean valuations over time.
Actionable Takeaway:
Build a rules-based system.
- Define your risk tolerance. Allocate only what you can afford to lose in volatile assets. In extreme circumstances, hold only short-term Treasuries.
- Use stop-loss orders to automate discipline. Set them below calculated Pivot Points.
- Diversify across uncorrelated assets (e.g., gold, bonds, real estate) to buffer against shocks.
Part 4: Harmonizing Natural Law and Intervention—A Practical Framework
- Educate Continuously
- Study history. The dot-com bubble, the 2008 crisis, and the 2020 rebound all followed cyclical patterns despite interventions.
- Read The Intelligent Investor by Benjamin Graham—a masterclass in balancing fundamentals and market psychology.
- Adapt Strategically
- In calm markets, lean into natural cycles (e.g., seasonal sector trends).
- In chaotic times, prioritize capital preservation. Shift to defensive stocks (utilities if interest rates are starting to fall, consumer staples unaffected by tariffs), short-term Treasuries, or cash.
- Filter the Noise
- Unfollow fearmongering media. Follow data-driven sources like the Wall Street Journal, Investor’s Business Daily, or Bloomberg.
- Join communities (e.g., reputable investing forums) to exchange ideas—but verify claims independently.
The Bottom Line: You Are the Steward of Your Wealth
Markets will always oscillate between natural order and human disruption. Your job isn’t to predict every twist but to build resilience. As Ecclesiastes reminds us, seasons change—but wisdom endures.
Your Challenge This Week:
- Audit your portfolio: Are your holdings aligned with your goals and the current market phase?
- Research one intervention (e.g., impacts of tariffs and upcoming elections) and its historical market effects.
Remember, every great investor—from Warren Buffett to Peter Lynch—succeeded by respecting cycles while staying agile. You can, too.
—Bill Cara
P.S. When in doubt, return to Ecclesiastes: “Wisdom preserves the life of its possessor.” Stay curious, stay patient, and let natural law guide your journey.