Market cycle book vs. the original: Rereading the Stock Market Flow

The index is rising, so why is my account staying flat?

When you invest in stocks, you run into strange moments a lot. The news says the market is rising, but your account barely changes, and just when you think the mood is finally turning and you buy, a correction starts as if it had been waiting for you. I spent most of my time on picking stocks, too.

I figured that if I looked for companies with strong earnings, studied industries that would grow, and found a good stock, I could invest well. But after going through several market rises and falls, I realized there is one more thing as important as the stock itself.

It is figuring out where the market is right now. I had read How to Read the Stock Market Flow by the Japanese fund manager Kunio Uragami before, and recently I followed it with Rereading the Stock Market Flow.

The titles are similar, so at first I thought this was a slightly modernized retelling of the original. After reading both, I felt the direction connects, but the content and depth are clearly different. Comparing an old investing classic with today's market actually helped me understand the idea of market flow a bit more easily.

What is the four-seasons theory in the original How to Read the Stock Market Flow?

The four seasons of the stock market, first learned from a Japanese investing classic

The most famous part of Kunio Uragami's book is the four-seasons theory of the stock market. It explains the market's cycle through four phases: the financial market, the earnings market, the reverse financial market and the reverse earnings market.

What struck me most when I first read it was that stock prices and corporate earnings don't always move in the same direction. Sometimes the stock market rises first, while the economy is weak and company earnings are poor.

• Financial market (금융장세): interest rates fall, liquidity is supplied, and money moves into stocks
• Earnings market (실적장세): the economy then recovers and actual corporate profits grow
• Reverse financial market (역금융장세): rates start rising to cool an overheated economy, and the market mood changes
• Reverse earnings market (역실적장세): even corporate earnings worsen

The structure goes like this: rates fall and the financial market begins, the economy recovers and it moves into the earnings market, and conversely, once rates start rising, it passes through the reverse financial market and connects to the reverse earnings market.

I found it quite intuitive to see the complicated stock market as one cycle, like spring, summer, autumn and winter. Before reading this book, I thought simply that stocks rise when earnings improve and fall when earnings worsen. But the real market often moves ahead of the economy, and you have to look at interest rates and liquidity too.

Strengths and limits of the original

I think the biggest strength of How to Read the Stock Market Flow is its clarity. The explanation is concise enough that even someone studying market cycles for the first time can picture the whole structure.

That said, you do have to remember it is an old Japanese investing book. Global money now moves much faster, and the ETF market has grown a lot. The influence of US big tech on stock markets worldwide is also incomparably larger than before. So after understanding the basic cycle from the original, I wondered how to apply that structure to today's market. The book that let me follow that curiosity was Rereading the Stock Market Flow.

How is Rereading the Stock Market Flow different from the original?

Looking at the same market flow again, in today's investing environment

Rereading the Stock Market Flow also starts from the four-seasons theory. But it doesn't simply repeat the original's four phases.

It explains, more concretely, how to view the current market around three axes: the economy, interest rates and corporate earnings. It also covers major investing styles such as value, growth and momentum investing, along with the principles of factors.

Its range is also quite wide, covering stock selection criteria, technical analysis and risk management, which is another difference from the original. To compare the two: How to Read the Stock Market Flow tells you about the market's seasons, while Rereading the Stock Market Flow is closer to a book telling you what to check to judge which season it is now. The original is simple and clear, so its core concepts stay in memory for a long time.

This book, on the other hand, makes you think one step deeper. For example, when the stock market rises, not every stock rises at the same time, right? In some periods growth stocks lead the market, and in others money moves to value stocks. Some markets are strong for large caps, while in other stretches small and mid caps get the attention.

What you notice when only the index rises and your stock stays flat

The most frustrating moment in my investing was when the index rose and only my stock didn't move. I used to simply think I had picked the wrong stock, but after reading these two books I started looking not only at the market phase but also at which style of stock money is currently moving into.

I also found it interesting that the book introduces market theories from different viewpoints, such as the efficient market hypothesis, behavioral economics and the adaptive market hypothesis. I liked that it doesn't claim only one theory is the answer and instead lets you look at the market from many angles.

In what order should you read the two books, and who should read them?

Personally, I recommend reading the original How to Read the Stock Market Flow first, then Rereading the Stock Market Flow. It was much easier to understand when I grasped the skeleton of the market cycle from the original first, then filled in what the current investing environment needs with Rereading the Stock Market Flow.

If you are wondering, as in the market these days, why your account stays flat while the market rises, or you want to study how interest rates, the economy and corporate earnings connect to the real stock market, it would be good to read both.

Reading the two books, I also started asking "Where is the market now?" before "Which stock should I buy?" Maybe reading the market's flow is not a skill for predicting the future, but a process of building your own standard that won't waver in a changing market.