Recession Preparation 101
You've probably heard the 'R word' recently..
Lets talk about it!
The global markets are very uncertain right now. Investors, traders, and firms alike have been getting slaughtered in the past weeks, and trillions of dollars in value have been lost. There are lots of different factors being considered, and among them are:
- Corona Virus Affecting Productivity/GDP.
- QE Programs to Stimulate Economy.
- China Manufacturing Index reaching record low.
- Negative Long term Bonds.
- Precariously at 3.5% unemployment in USA.
Here is an interesting article if you want to learn more:
Its impossible to pinpoint and integrate every single factor in the market, but we've got a very comprehensive understanding. Want to learn more about the cycles in play? You should read our free Modern Finance eBook! You can find it in our Discord #start-here introductory section.
These factors are all very diverse and rely on information from different sectors. While they point in the same direction, nothing is ever certain. However, it is very beneficial to understand how exactly to profit from a recession. Its during these trying times that Trillions are lost from the market, but millions can be made for the individual. Lets talk how.
Step One: Get some cash, and sit on it.
This is the very first step to capitalizing on a market crash. You don't need to have a crazy amount, having any is whats important. Further, the intention behind is what matters - making sound investments is a valuable experience in itself. Recessions generally confer a 50-70% decrease in the overall market cap which can be much more significant when looking at individual companies. Cash allows you to capitalize, so acquire as much of it as possible.
Need some ways to make cash? We've got some in mind. However, that is a topic for another blog post!
Step Two: Watch Paint Dry.
Patience is the most important aspect to be effective in the markets. When choosing to wait for the perfect entry, you're a sniper waiting for the perfect shot. Nothing but the perfect opportunity will satisfy you, and achieve what you goals. Recessions have lasted months and years, and it can seem even longer while enduring it yourself. Recognizing the potential for a longterm trend asks a good question.. When should I buy in?
Step Three: DCA
Such a simple and effective strategy! The "Dollar Cost Average" is the average price one paid for their collective investment. Ideally you want this to be as low as possible, but how is that achievable?
Lets say you get paid every two weeks. Upon this pay day you transfer $200 to your investing account, and enter the market into low cost index funds with dividends. This is a relatively safe move and the constant growth of your account is reliable when looking at the long term. Since you're buying the same day every two weeks, your average cost is determined by how much you bought, and the price on that day. Those are the only two variables present.
Famous investor Warren Buffet lives by the rule "Buy when there is blood in the streets". This is one of the most profound quotes because it adequate sums up the BRK.A investment strategy so simply. Did I mention that they are sitting on a record setting amount of cash (over 130 billion). This discretionary DCA means that you average in "on the dips" on a regular basis as the primary driving force behind your capital expansion.
Its hard to say which is better because they're different systems. The first is emotionless and doesn't accept any variable other than time. While the second could provide opportunities, you might not execute properly, or "hold out" for too long waiting for a larger dip. This strategy is more for experienced investors who know how to recognize when a dip is coming.
Step Four: Pick an asset
This is one of the most challenging steps because you should only invest in assets which you understand inside in and out. There is much more to a stock then a company name, or what an index fund is - you need to peel back the layers yourself. Always do your own research. Here are some of the sectors/industries/securities which have peaked our interest..
Asymmetric, non-correlated assets:
- Precious Metals (Silver and Gold)
Fancy term for something simple: these assets are not correlated to the rest of the market, and have a non symmetrical R-R structure when looking long term. Since these assets can see stark short term volatility, its important to consider the macro picture and plan your DCA accordingly. Together, BTC and metals are considered "hedges" because data suggests they go up as uncertainty rises and markets decrease.
Low Cost Index Funds:
Instead of buying one share of a company, index funds give you exposure to a whole collective pool of them! Although the company who offers the security will always take their share, its important to find the ones which are low cost. Buying index funds like SPY allows you to "invest in the economy". Again, DCA is your friend with these kinds of investments.
This one is much more region specific and you might not have the same opportunity that others do.. Keep your eyes out! Housing markets generally retract towards the latter half of a market recession. The reason being that the homeowners have lost equity value themselves, and less people are buying in the market. This compounds to a low demand, and possibly high supply as people refinance, downsize, etc..
The key thing to look for is cash flow positive choices. Large down payments allows you to secure a low monthly mortgage payment. If you can rent for more than your mortgage, it is cash flow positive. This is the ideal scenario.
Step Five: Stay Calm
While easier said then done, this is crucial! You need to keep a calm and level head throughout the entire process to properly capitalize. Need help staying on the right track? You're among friends here!
Performante Premium can provide all of the training, mentorship, and direct help that you need to learn how to capitalize from a market recession. We're looking to make the same moves you are, and its always better to profit with friends! Message Nathan or Keith on the Discord if you want to learn more about how exactly we can help you.