It's 12 noon. It's 12 noon. It's 12 noon.

If I keep saying that long enough, I'll eventually be right. Once, and for just 60 seconds. But I'll be right. But what if I vary my assertion a bit? What if I say "It's 12 o'clock," without including the a.m./p.m. modifier? Now I've doubled my chances of being right. And if I say it's nighttime? Daytime? The more I generalize, the better my chances of becoming known as an expert in this field of stating the obvious.

Forecasting trends in cyclical industries is a lot like telling time without the benefit of a wristwatch. You can never be entirely certain that you're right -- until the chiming of the grandfather clock in the hallway makes it obvious to everyone that you are. And by then, of course, your prediction has lost its predictive value.

That's why, when writing about the global steel industry, for instance, I most emphatically do not attempt to tell Fool readers when the next downturn in the industry will arrive. What I do say, however, is that the downturn will arrive. Sometime. Maybe in the daytime. Maybe at night. Maybe at 12 noon on the dot.

Mr. Market is not a complete idiot
I know, we give moody Mr. Market a lot of grief around here at the Fool. We call him irrational, nearsighted, and a thousand other derogatives. But he's not a complete idiot. He's been around a lot longer than you or I have. And over that time, he's developed a pretty good feel for how certain industries are affected by cyclical trends over the long term.

So poke fun at the market if you will. (Really, try it -- it's fun!) But at the same time, listen to what it's telling you when it prices companies such as AK Steel (NYSE:AKS), U.S. Steel (NYSE:X), and Nucor (NYSE:NUE) all at price-to-earnings ratios (P/Es) of less than 10. I mean, really, the average S&P 500 company is selling for a historically pricey 20 times earnings right now. Yet these steel companies, reporting strong earnings increases over their year-ago numbers, merit earnings multiples of just half the market's average? Something's up here, Fools. And that something is the market telling you that the steel earnings you see today are ephemeral, the relative increases over last year's numbers -- anomalies.

In short, through the language of earnings multiples, Mr. Market is whispering in your ear those famous words: "Don't believe the hype." A downturn is coming. These earnings will melt away and perhaps turn into losses. We may not know exactly when, but the cycle of boom and bust is eternal.

Hidden Gems: A different approach
Predicting the precise highs and lows of industry cycles isn't easy. And here at the Fool, we're all about easy. We don't think that investing is nearly as difficult as the suits on Wall Street would like you to believe. It's really only as hard as you make it.

That's one reason we don't spend a whole lot of time worrying about where we are on the steel cycle, the semiconductor cycle, or the unicycle for that matter. Rather, we concentrate on understanding the fundamentals of individual companies. By diligently sifting through thousands of stocks, then whittling away at them until we find the ones with the very best prospects, our Motley Fool Hidden Gems newsletter has generated 36% total returns since inception -- vs. the S&P 500's 10% returns -- with nary a thought to catching a cycle's trough.

Now think about those numbers for a moment. The market at large has clocked an average 10% annual gain over the past several decades. Investing grand masters like Legg Mason's Bill Miller receive accolades from everyone from the Wall Street Journal in the United States to Reuters in Europe for beating the S&P 500 by an average of 7% over the past 10 years.

And deservedly so -- our hat's off to anyone who consistently beats the market year in and year out, and with a 7% margin over that length of time, the list of such investors is decidedly short. We will strive to continue our own success by doing what we've always done: looking for discounts to intrinsic value, unloved companies poised for growth, and dominating companies with wide moats around their market niches.

Size matters
Perhaps the differentiating factor between our own and Mr. Miller's style is the size of our investments. Because the Legg Mason Value Trust has more than $10 billion to invest, it's locked out of investing in some of the smaller companies that we, as individual investors, can buy into with ease. Unconstrained by size, we're able to buy into the very smallest of small caps (and the very largest of large caps), wheresoever value might reside. In contrast, Mr. Miller's returns are that much more impressive because he's forced to seek what value can be found in megabanks such as JPMorgan Chase (NYSE:JPM), huge e-conglomerates like InterActiveCorp (NASDAQ:IACI), and prescient calls on value-in-growth-clothing companies such as Google (NASDAQ:GOOG) and UnitedHealth (NYSE:UNH).

Cycles are everywhere
A few months ago, Hidden Gems recommendations were beating the market by better than 38% -- 43.5% to 5.3%, to be precise. Today, our lead has been cut to about 26 points. So our success is going to vary over time. Meanwhile, Legg Mason's Value Trust has beaten the S&P 500 by a significant margin in each of the past 14 years, and could be on its way to pulling off the seemingly annual trick of getting way behind the market early in the year only to close the gap in the fall and surpass it in December. That's a lofty record to shoot for. And we'll be darn proud if we can help our members approach that record over the next 12 years of our existence.

There will come an hour when recession strikes, investors flee the market, and the S&P itself drops like a stone. As with steel cycles, I don't know when any of this will happen, but chances are that the day will ultimately come. Our challenge as investors, and our overarching objective as researchers working to help you achieve your financial independence, is to just keep on doing the following:

  1. To recommend only the best companies we can find.
  2. To only recommend these companies at prices providing significant discounts to their intrinsic value.

It's as simple as that. And as easy as riding a (bi)cycle.

Ready to start investing today, cycles be, er, danged? It doesn't cost a cent to get started. Join Hidden Gems today and get your first month free. And any time you decide to stop and hop off the bicycle, we'll gladly refund you for the entire unused portion of your subscription. No questions asked. No strings attached. You have our word on it.

This article was originally published on Jan. 19, 2005. It has been updated.

Fool contributor Rich Smith has no position in any company mentioned in this article. UnitedHealth is a Motley Fool Stock Advisor recommendation. The Motley Fool isinvestors writing for investors.