Making a fortune in life depends on the "Kondratiev Wave"—a reflection on economic cycles

“Prosperity in life depends on Kondratiev waves,” this is the classic assertion by the late economist Professor Zhou Jintao. Its core meaning is that personal wealth accumulation entirely depends on the opportunities brought by economic cycle movements. Although the word “entirely” may seem absolute, it illustrates the enormous influence of economic cycles on our wealth accumulation. In a speech in 2016, Professor Zhou pointed out that at that time, the Kondratiev cycle was at a turning point from recession to depression, and the next ten years would be a period of depression (based on that speech’s judgment, this Kondratiev cycle entered a recession around 2008-2009 and is expected to bottom out around 2030). Looking back now, this prophecy has been validated by reality.

1. Personal Insights on Economic Cycles

When young, I often heard elders say, “Thirty years east of the river, thirty years west of the river,” lamenting the changes in the world and the flow of fate. I didn’t understand it at the time, but now, with some knowledge of economic cycles and personal experience, I realize—this proverb actually contains the great wisdom of “economic cycles.” Sixty years is exactly a complete “Kondratiev cycle”!

For myself, over the past decade or so after starting work, the most tangible experience has been the real estate cycle. The real estate cycle usually lasts over 20 years (sometimes nearly 30 years, with about 20 years of upward movement and about 10 years of downward movement). China’s housing reform began in 1998, housing prices peaked around 2016, then maintained high levels for two or three years of consolidation, followed by an overall downward trend.

The average age for first-time homebuyers is between 25-30 years old. As someone born in the early 1980s, I am relatively fortunate to have caught the tail end of China’s rising real estate prices, because, for those born in the early 1980s, reaching the age of first home purchase around 2010, it coincided with the upward phase.

For those born in the late 1980s and early 1990s, the situation is different. Their first home purchase age was around 2018-2019, at which point, housing prices were at the cycle’s peak, and the subsequent pressure of falling prices was predictable.

This is a direct projection of the power of cycles onto individual destinies.

2. Why Are Most People Insensitive to Economic Cycles, Especially Long Cycles?

Economic cycles are so important, but why do many people lack awareness of them, especially the major long cycles? I think, on one hand, it may be because they are distant from economic activities, and on the other hand, because some cycles have very long durations. This reminds me of the wave intensity formula: I∝ρA²ω²u (where I represents wave intensity, A is wave amplitude, ω is angular frequency, 2 is squared, and ∝ indicates proportionality). If we view the economic cycle as a wave, then the perceived intensity is related to the wave’s frequency, amplitude, and also the distance from the wave source. Based on this formula, I summarize the reasons why most people lack perception of cycles as follows:

1. Important economic cycles have long durations and low frequencies: The four major economic cycles we know are: Kondratiev cycle (technological revolution cycle) about 50-60 years, Kuznets cycle (real estate/building cycle) about 15-25 years, Juglar cycle (equipment investment cycle) about 7-10 years, and Kitchin cycle (inventory cycle) about 3-4 years. These cycles have long time spans and low frequencies. The longer the cycle (smaller angular frequency ω), and the more gradual the amplitude (A) changes at non-critical points, the weaker our perception of their “strength.” You can feel the changes in the 20-plus-year real estate cycle, but it’s much harder to perceive the 60-year Kondratiev cycle.

2. Short-term economic fluctuations obscure our focus on long-term trends: In daily life, we are more easily attracted by short-term, high-frequency fluctuations, such as stock sentiment cycles, which can complete a cycle in days or a couple of weeks; futures intraday fluctuations, with even shorter cycles and higher frequency. These short-term fluctuations often divert our attention from the long, grand cycles.

3. Distance from economic activity (far from the wave source): For those directly involved in core economic activities, such as financial practitioners, government officials, and key decision-makers in large enterprises, the perception is stronger. Ordinary people’s lives are less connected to these, so naturally, their perception is weaker. The farther you are from the wave source, the smaller the perceived intensity.

4. Understanding Cycles, Interpreting Cycles, and Using Cycle Thinking to Guide Investment Decisions

Although economic cycles are intangible and rarely used in daily life, they influence our economic life and wealth accumulation at critical moments. Therefore, we must pay attention to understanding and interpreting cycles.

For most enterprises and individuals, major investment opportunities in the entire lifecycle may only occur 2-3 times. When making significant asset investment decisions, it is essential to consider the cycle’s stage. Otherwise, efforts may backfire, leading to greater mistakes.

Take banks as an example: if, after 2016 and in the following years, the real estate situation was very good, but banks did not study the real estate cycle (Kuznets cycle), which was near its peak, and instead increased real estate credit issuance, the result would inevitably be that the more they lend, the heavier the potential bad debt burden. Real estate companies are similar; for example, in 2016-2017, those real estate firms like Evergrande that ignored cycle signals and continued to expand and land grab wildly, their outcomes are obvious.

For individuals, understanding and applying cycles are equally important. For example, for those born in the late 1980s and early 1990s, if they had understood the cycle, delaying their home purchase by a few years around 2019 could have avoided personal wealth loss.

Understanding economic cycles is not a “post hoc” move; it can provide forward-looking guidance for predicting asset price trends and making smarter investment decisions. Although when most people use cycles to guide decisions, it may distort the cycles, as long as human nature exists—greed and fear—the cycles will always exist and remain effective forever.

These are some personal insights into the power of economic cycles. Moving forward, I will continue to learn and explore, and try to share: what stage are the four major economic cycles (Kondratiev, Kuznets, Juglar, Kitchin) possibly in? How do short cycles like the “Pig cycle,” “Egg cycle,” “Coal cycle,” which are closely related to our daily lives, operate? What are the fundamental factors driving these cycles? And how do they specifically affect our lives? **$ETH **$BTC