{"id":1101,"date":"2024-07-12T10:22:15","date_gmt":"2024-07-12T10:22:15","guid":{"rendered":"https:\/\/cedcapital.in\/?p=1101"},"modified":"2024-07-12T10:25:19","modified_gmt":"2024-07-12T10:25:19","slug":"earnings-and-multiples-cycle","status":"publish","type":"post","link":"https:\/\/cedcapital.in\/?p=1101","title":{"rendered":"Earnings and Multiples Cycle"},"content":{"rendered":"<p><span style=\"font-family: tahoma, arial, helvetica, sans-serif; font-size: 14pt;\">One of the few constants in realm of investing is that most of the variables \u2013 interest rates, commodity prices, and profit margins \u2013 move in <em>cycles<\/em> and not straight rising\/ falling lines. In addition to demand and supply dynamics, <em>human emotions<\/em> especially greed and fear play a contributing role in creation, sustenance and reversal of cycles. When things go well, greed fuels the rise of a cycle and when things do not go well, fear exacerbates the fall.<\/span><\/p>\n<p><span style=\"font-family: tahoma, arial, helvetica, sans-serif; font-size: 14pt;\">A corollary to existence of cycles is the tendency of these variables to <em>revert to mean<\/em>. Of specific interest to us is the position of earnings and multiples assigned to the earnings in that cycle. <strong>Not only profits revert to mean, the multiples that market is willing to pay for the earnings also revert to mean<\/strong>. In a downwards earnings curve, markets &#8211; dictated by emotions-\u00a0 often assume that bad times will continue and assign lower multiple resulting in double down effect on prices. And, vice versa in good times. If our belief is that earnings will revert to mean, we can be reasonably sure that multiples too will revert to mean.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>One of the few constants in realm of investing is that most of the variables \u2013 interest rates, commodity prices, and profit margins \u2013 move in cycles and not straight rising\/ falling lines. In addition to demand and supply dynamics, human emotions especially greed and fear play a contributing role in creation, sustenance and reversal [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[15,4],"tags":[],"class_list":["post-1101","post","type-post","status-publish","format-standard","hentry","category-business-analysis","category-macroeconomics"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/cedcapital.in\/index.php?rest_route=\/wp\/v2\/posts\/1101","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cedcapital.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cedcapital.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cedcapital.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/cedcapital.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1101"}],"version-history":[{"count":4,"href":"https:\/\/cedcapital.in\/index.php?rest_route=\/wp\/v2\/posts\/1101\/revisions"}],"predecessor-version":[{"id":1105,"href":"https:\/\/cedcapital.in\/index.php?rest_route=\/wp\/v2\/posts\/1101\/revisions\/1105"}],"wp:attachment":[{"href":"https:\/\/cedcapital.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1101"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cedcapital.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1101"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cedcapital.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1101"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}