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Timing Investments - Frequently Asked Questions

Posted by Alan Beaulieu on Mar 22, 2021 10:57:00 AM

Is timing my investments in my business like trying to time the stock market?

Yes, it is similar in that there are leading indicators for both. ITR has leading indicators for the stock market that work well as long as you do not need to time the absolute bottom or high. Timing your investments in your business is definitely easier. We have a plethora of leading indicators that will clearly indicate when a shift in the business cycle is going to occur, and that forward view gives a decision maker time to prepare and to act.

Why is timing my investments important? Doesn’t it all work out in the end?

Not all investment miscues lead to disaster, but they almost always lead to a misallocation of resources. Consider the firm that spends a significant sum on their lobby and general customer/visitor experience. Doing so at the top of the business cycle, right before the cash flow begins to dry up, has a significant impact on how the company can respond on the back side of the business cycle. The lobby will look good for years to come, and it was probably needed, but cash is the greater need as the economy begins to contract.

How can I know when to pull the trigger on my capital expenditure?

You can know when it is time to invest when you use rates-of-change and key leading indicators. There are clear, mathematically derived triggers that will indicate when a change is likely to occur, others that will confirm it as it occurs, and then comes the signal that the shift is sustainable (whether the direction is rise or decline). This is analogous to flying by instruments as opposed to by "the seat of your pants" or visual flight rules. The latter two work well in clear weather, but you need instruments when the skies are uncertain and to detect that a storm is coming.

Is it difficult to know the "when"?

No, it is not. The use of rates-of-change and leading indicators is explained in writing and via video at our website, www.itreconomics.com. There you will learn how you can begin to see the future with an Excel spreadsheet and your own data. The power of the rates-of-change becomes immediately evident, and you can now see where you are going. Leading indicators are added to show you how long the current business cycle phase will last, thus providing input for the all-important timing of implementation.

Is it expensive to know the optimum time for investing in my business?

It is not expensive to know the optimum time. It is much more expensive to miss a key opportunity or to invest at exactly the wrong moment. Imagine the company that spends a million dollars, and borrows millions more, to build a new state-of-the-art facility right before a significant recession. Those types of missteps can put a company out of business. The cost of knowing is negligible in comparison. Internal labor can be applied to the task, or we can work with you on developing a reliable view of your future.

Is there a place where I can see what I should be considering at different points in the business cycle?

Yes. Our website provides actionable Management Objectives™ for each of the four phases of the business cycle as identified by ITR. These action items, combined with an understanding of phase positioning, provide insight as to what should be done and when it should be done.

 

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