In the field of investment, the commitment to cyclical consumption is a risky investment strategy. This, since it means the acquisition of financial assets that experience changes as a result of inflation or the acceleration or deceleration of the economy.
Many investors seek to obtain certain levels of return through speculation in consumer cyclical securities.
In other words, in the financial day-to-day, investment opportunities appear motivated by price volatility. These changes often do not respond to estimated trends, so they go hand in hand with a level of risk to be taken into account.
On the other hand, sometimes cyclical consumer goods have details such as the effect of fashions and trends.
Investment relevance of cyclical consumption
Taking into account the above, there are companies that are affected by the drift of the economic situation and the consequences of what are known as economic cycles.
This phenomenon supposes that the prices of their products are altered and, therefore, their consumption varies.
In terms of consumer preferences, these types of volatile products undergo changes due to the concept of elasticity of demand.
In other words, changes in price affect consumption. Families decide not to consume the goods that have become more expensive based on criteria such as need.
Main features of cyclical consumption
As previously mentioned, the goods known as cyclical consumption attract less conservative investors due to the following specifications:
- Aggressive investor profile: The decision to invest in cyclical consumption corresponds to profiles that are not very conservative from the stock market point of view.
- Investigation and estimation: The detection of cyclical market opportunities requires the study of stock market trends and the prediction of their future changes.
- seasonality: It is frequent that the economic cycles respond to periodic calendars. It is more frequent in periods of cold weather to invest in securities related to fuel or gas, for example.
The evaluation of the behavior of these securities will therefore go hand in hand with knowledge of the economic cycle in which a sector or the economy as a whole finds itself.
In other words, this type of economic sector responds equally to the economic circumstances in which they operate: in the growth phase, its price increases, and in the contracting or recessive phase, the opposite will happen.
Examples of cyclical consumption
Investment for cyclical consumption is closely linked to the behavior of the main economic ratios.
In this way, it is easy to identify investment criteria for both the expansion phase and the contraction phase.
A common example of this is investment in potentially successful products or those focused on R&D. It is estimated that the economy will tend to its future employment, which could translate into future profitability.
On the other hand, buying securities present in sectors such as real estate or related to leisure or tourism is a frequent investment practice within this modality.
In other words, cyclical consumption would cover a wide range of possibilities far from the so-called basic necessities.