Adams’s research report (see the preceding problem) continued as follows: “With a business recovery already under way, the expected profit surge should lead to a much higher price for Universal Auto stock. We strongly recommend purchase.”
a. Discuss the business cycle approach to investment timing. (Your answer should describe actions to be taken on both stocks and bonds at different points over a typical business cycle.)
b. Assuming Adams’s assertion is correct (that a business recovery is already under way), evaluate the timeliness of his recommendation to purchase Universal Auto, a cyclical stock, on the basis of the business cycle approach to investment timing.