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Suppose you could correctly predict that the business cycle was approaching a trough. What should your...

Suppose you could correctly predict that the business cycle was approaching a trough. What should your investment strategy for stocks be?

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Answer #1

A trough is the stage of Business Cycle which represents the end of declining business activity and movement towards expansion. If the investor is able to identify a trough it implies that the stocks are at the lowest prices and they will be increasing henceforth. In this scenario the investors should buy more stocks since they are expected to increase in price and the risk of loss is the lowest.

In this scenario the portfolio should be shuffled to incorporate more stocks by shifting investment from risk free assets to the stock market.

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