Be fearful when others are greedy, and greedy when others are fearful. — Warren Buffett.
Recession! Just that one word is enough to summon up images of graphs depicting downward trends, alarming news headlines, fear, unemployment, bankruptcy and it’s all absolutely true. During the times of a recession the stock market comes tumbling down, house prices fall, businesses go bankrupt, people lose their jobs, life savings are lost, pensions that people have been putting money in since the start of their working careers vanish. Everything is going downhill, and NOBODY IS WINNING…OR ARE THEY?
Some might see recessions as a time of turmoil, but others see it as a golden opportunity. Recessions have generated more millionaires than lotteries and investors like Warren Buffett “want to see more recessions” But before moving on, let’s understand the basics, shall we?
According to Investopedia, “A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a rise in unemployment.” If you still haven’t understood what a Recession is then, Basically, it’s a decline in a country’s GDP for 2 consecutive quarters (6 months). Now what is a country’s GDP? You might be wondering. Well, GDP is the final value of the goods and services produced within the country. Every time you get a haircut, or you buy your favorite Starbucks drink, you are contributing to your country’s GDP. During the times of Recession this very thing starts to decline. As people are losing their jobs, they don’t have enough money to buy goods and services and this causes a RECESSION….Well, not really. Recession isn’t caused by one specific thing — such as unemployment or stock market volatility, instead, it is caused a variety of things that are too hard to point out individually. For instance, the 2008 was labelled as a subprime mortgage crisis. But there were a lot of other things that accelerated the recession such as Global Inflation, already devastated local labor markets and devastated national economies. The most important take away from this is — you cannot explain the cause of a recession.
Before moving on, I want you to know the 3 absolutely crucial rules of this game. Write them down, memorize them,tattoo them on your body!
Let’s fast forward a little bit, shall we? Your country has just experienced a devastating recession, but now the economy is booming! There is an unfathomable amount of money in the economy, everything is starting to go uphill. The stock market is hitting an all-time high, property rates are increasing rapidly, people are buying credit cards and racking up debt like there’s no tomorrow. Things are totally different to what they were a few months ago. So… what are you doing? Are you the dead fish that’s going with the flow? NO! Remember what Warren Buffett once said:
“Be fearful when others are greedy, and greedy when others are fearful”
This is a golden opportunity to start saving money and preparing for the worst. Because remember: the market will always crash. Not today, not tomorrow, not next year. But IT WILL crash someday. As you are preparing for the worst-case scenario, you should be paying attention to this checklist. Again, write this down, memorize this, or tattoo this on your body.
Build up your CREDIT SCORE
(This will allow you take advantage of the juicy low interest rates that banks will offer during a recession. There’s no point in being surrounded by gold with no tools to harvest it)
“I’ve heard there’s going to be a recession, I’ve decided not to participate” — Walt Disney
Now the time nightmare has come, the inevitable recession has come. What’s happening around you? People are losing their jobs, they have no money to pay back their debt, companies are going bankrupt. Panic. Panic. Panic. It’s everywhere (literally). People are absolutely intimidated about their assets and the debt that they have racked up. They are selling their stocks at a very low price (opposite of Buy Low, Sell High). So… what are you doing? By now you should have a lot of capital, no / very low debt, and a very healthy credit score. What should your next step be? Well, invest back in the very economy that is crashing because remember: the market will always bounce back! Take advantage of the juicy low / negative interest rates that the banks have to offer, buy more stocks in businesses that sell escapism. Why? Well during a recession these companies hit an all-time high. There is stress, depression, anxiety everywhere! People need some sort of escapism and they rely on these businesses (Netflix, etc.) There will be a lot of other industries that will strive during this period. Research. Analyze. Invest. Because (just to reiterate) the market will always bounce back. If you would’ve invested in the S&P 500 during the 2008 recession, your money would have increased by about 300% Not bad, is it?
Recessions can be a very difficult time for a lot of people, but the purpose of this article is to simply show you how to prepare yourself for one.
There you go, there you have it! (Obviously I am not a financial advisor. Consult one before making any investments) Thank you so much for reading this very first article of mine, a bag full of interesting articles on Finance, Science and Business is on its way!