When we talk of cyclicals, what do we mean?

A very literal interpretation would be something that happens repeatedly at fixed intervals. So we have circadian rhythms, lunar cycles, solar cycles, etc. And these are all quite accurate.

But in the stock market, when we refer to a stock / sector / company as being a cyclical, the periodicity is totally unclear, isn't it? Perhaps, Tisco isn't the best example.

In any case, were some stocks obviously cyclical, wouldn't anticipatory market moves either amplify or dampen the price movements?

I'm not sure I've made my point clearly, but any feedback would be welcome .

Cyclical stocks are ones that are influenced by economic and business cycles.

When the economy is doing well and consumers/businesses are spending money, cyclical companies tend to do well.

When economy starts to slow down and consumer spending shrinks, cyclicals companies suffer too.

e.g. steel is an industry whose fortunes are closely related to global economic growth.

Individual sectors have their own cycles too, which are generally based on capacities and demand. When demand is more than the capacity, the sector tends to do well. Prices remain firm and almost all output is consumed. When there is over-capacity in the sector, both prices and capacity utilization falls.

e.g. sugar has been following its own cycle since the last few years.

sugar industry was suffering from over-supply when the world economy was booming and now when the global economy is down, there is a shortage of sugar and prices are sky-high.

Individual companies also have their own internal cycles which depend on
-how fast they build inventories and get rid of it.
-capacity utilization etc.

Some sectors are usually resilient to external cycles.
-essentials like pharma aren't influenced by economic cycles.
-sectors where demand far exceeds the supply, are not influenced by economic cycles.
e.g. education sector. top private colleges are charging heavy fees....even in a recession....
-sectors closely regulated by government are also not influenced by economic cycles.

========================

Neither economic, sector-specific or company-specific cycle have a fixed time-period.

only type of cycle that has a fixed period is seasonality.

e.g. fireworks industry in India always has its peak during Diwali.

however, even the fireworks industry in influenced by overall economic conditions in the county.

people spend less during Diwali in recessionary times.

========================

besides the cycles that influence companies, stocks themselves are influenced by cycles in money supply and interest rates.

it would have been easy to anticipate stock price movements if there was just a single cycle influencing them.

however that is not the case.

companies (and stocks) are influenced by multiple cycles at the same time and most of these cycles don't have any fixed time-periods.

according to many analysts, even human behaviour and sentiments are cyclical in nature and there are indicators built to measure them too....

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

Alchemist, first, thanks for the detailed reply.

So would it be fair to say, that given all the variables involved, there's really no need to avoid a company just because it has a cyclical tag? Also, if one is prepared for volatility, holding some cyclicals for the long term isn't an automatic no no? Some cyclicals such as tea and sugar and shipping may be easier to read and jump in and out of (although the current rise in SCI & GE Shipping is confusing quite a few ).

You have mentioned education and pharma as relatively unaffected because of their essential nature.

The thing with education, is that we don't have listed entities in education per se, but we have enablers such as Educomp, Everonn, NIIT, Core Projects, etc.

Along with pharma, I think we can also include hospitals, though these can be capital intensive.

Elsewhere, I've read that telecom and insurance may also be seen as non-cyclical.