GEO Investing

The sales, earnings and thus share prices of cyclical stocks (cyclicals) tend to fluctuate with the overall economy and are associated with industries that are heavily affected by the economic cycle and consumer demand. (Example: stocks in the automotive, airline, hospitality, housing, building material and retail industries).

Cyclicals do well when the economy is strong and consumer demand is high, and conversely, can suffer when the economy is weak and consumer demand is low. This makes them an attractive investment class for those who are skilled at identifying economic trends or when it becomes fairly obvious that an economy is peaking or bottoming.

If you are familiar with legendary fund manager Peter Lynch and his must read book, One Up On Wall Street, you know exactly what “Buy what you know” represents. The Fidelity Magellan Mutual fund averaged an annual return of around 30% while Lynch was its portfolio manager between 1977 and 1990. Lynch was a big believer that even the average investor could achieve great success by investing in companies and industries that they have some type of relationship with.