[Financial Planning for the 100-Year Life] Gradually, Then Suddenly: Hemingway and Market Timing

Literature often describes human psychology more accurately than the market does. When trying to understand the financial markets, I recall Ernest Hemingway's novel "The Sun Also Rises." "Gradually, then suddenly." Although this line describes bankruptcy, I believe it is the most precise way to explain the market itself.

The market always moves in this way. The most important variable explaining the long-term trajectory of the KOSPI is semiconductor exports. This becomes clear when recalling the early phase of the semiconductor cycle. Memory prices bottom out and start to rise gradually. At this stage, no one is confident. Companies do not increase production, and investors still remember past declines. On the surface, nothing appears to be happening. Yet, in reality, the most significant changes begin at this moment. Inventories decline, prices rebound, and orders begin to increase little by little. This is the "gradually" phase.

Then, change accumulates. Once semiconductor exports surpass a certain level, corporate earnings improve rapidly. With profits confirmed in the numbers, even a previously skeptical market belatedly changes direction. At this point, stock prices rise swiftly. Investors ask, "Why did it rise so suddenly?"

But in reality, there is nothing sudden about it. It is simply the unveiling of changes that had been underway for a long time. The greatest trap in the market is precisely this "suddenly." People only recognize change when it becomes visible. That is why they are always late. By the time they feel confident, most of the change has already been reflected in prices. Investors end up buying at the highest price.

When the cycle turns downward, the same pattern repeats. In the initial stage, when the export growth rate begins to slow, nobody pays attention. The consensus is that it is merely a "temporary correction." However, if the slowdown continues, inventories pile up, prices fall, and exports decrease. At that moment, stock prices plunge. Again, the question arises: "Why did it drop so suddenly?"

But the answer remains the same. It is simply the revelation of changes that had been underway for a long time. The critical point is not the "level" but the "direction." The market does not reflect an absolute level but rather the pace of change. Hemingway's phrase captures this precisely. Whether in life or in the market, all change is the result of accumulation. And humans see only the results, not the accumulation itself.

Patience to endure the "gradually" is essential. One must have the strength to read the direction and wait in periods of uncertainty. At the same time, restraint is required not to get swept up in the "suddenly." By the time everyone is confident, it is likely already too late. The market constantly tests us. In times of uncertainty, it provokes fear; in times of certainty, it tempts us with greed.

The semiconductor cycle does not change. Technology evolves, and demand shifts, but human behavior repeats itself. Even with the advent of artificial intelligence (AI) or changes in memory structure, the market follows the same pattern. Excessive expectations form, investment and leverage expand, and then a correction follows. And this entire process unfolds "gradually, then suddenly."

We often try to understand the market in a complex way. Yet, its essence is surprisingly simple: read the invisible changes and act before they become visible. Hemingway captured human life in this way, and the market is no different. Investing is not about predicting the future; it is about recognizing changes that have already begun.

Kim Youngik, Adjunct Professor at the Hanyang University Institute for Future Talents

This content was produced with the assistance of AI translation services.