Most people and businesses suffer the consequences of a recession, losing assets and money. Others are taking advantage of the recession to make money. As I always tell ourselves: this money has to go one way or the other. You don’t lose it and it doesn’t end up in the trash. The question here is then: Where does this money go?
The answer is logical and simple: the money you lose during the recession goes to the bank account of prepared people.
How to prepare for a recession?
1- Analyze the economic environment
First of all, you need to analyze the economic situation in which you exist. There are different levels to analyze:
- The local economy
- National economy
- International economy
- Shifts in your industry
Each part is important because it helps to anticipate when the market will “slow down” or decelerate, and in which parts companies will start to lose money, or at least profits due to a drop in the market. consumer consumption, or a lack of company-level demand for the service/product.
2- Prepare your finances
Start saving your money. If you are planning to buy a new car or a house, wait a bit. If your analysis is correct, you will need this saved money to invest in the opportunities that are about to open. Don’t spend it on products or services you absolutely don’t need.
To take advantage of the recession, you will need cash to invest when prices start to fall and banks cut interest rates.
Where to invest once the recession begins?
Investing depends on several factors: what knowledge do you have, in which industries, how much money you have to invest, what is your objective: short, medium, long term, how much risk are you willing to take.
1- Real Estate
When a recession hits, many people can no longer pay their loans or rent and have to get out quickly. It is in your interest. If someone is in a rush to sell their house, the price will drop from the pre-recession market level. You can take advantage of this to take out low interest loans and wait for the crisis to pass to resell it with an easy profit of 20% and beyond.
2- Stock market shares
Investing in the stock market seems silly to many. While many companies’ stock values drop rapidly during an economic downturn, it’s possible to take advantage of the recession to invest in high-value stocks for “pennies on the dollar.” In other words, if the business is big enough, has good cash flow and a solid structure, and you know it can survive the crisis, chances are very strong that the value of the stock goes back beyond what it was worth before the recession when the markets stabilize again. For example, if you didn’t buy shares of Company X because they cost $130 a share, and they fell $83 during the recession, buy with a medium to long term goal (3 at 10 years), allows you to make a handsome profit when the stock price returns to 130 USD or rises even more. Also, in some well-established companies, you can count on dividends on purchased shares. It all depends on the type of business, but you can educate yourself before you invest your money, and you’ll receive money during the recession without having to wait for the stock’s value to rise.
3- Shorting
Another type of analysis that you can apply to your stock market investment strategy is to look for companies that are not going to be able to survive or are going to suffer severely from the crisis. In this case, instead of buying stocks with the strategy of selling them back once they go up to make a profit, you can do shorting, which in simple terms means that you are betting against the stock, and the lower the stock price falls, the more you get.
4- Invest in essential products
If you can take advantage of a source of income during a recession, it is in basic necessities. It’s about everything people keep buying, crisis or not. Water, food, medicines etc… people have to live, and some products are simply compulsory to buy, even in times of crisis. If you detect a recession in the coming months, or one that is just beginning (as happened in Mexico at the start of COVID), we recommend that you look for investment opportunities in basic necessities.
5- Think 3D: Deaths, Divorces, Defaults (of payment)
It has been proven that in times of recession, statistics on deaths, divorces and defaults increase. This means that in times of recession, a category of people is formed, who need to quickly get rid of their assets (real estate, luxury, fixed assets, etc.) because someone died in their family, they have to divide assets during a divorce and they need money to rebuild their homes, their lives and pay their lawyers, and also people who can no longer pay their credits (defaults) and then seek to get rid of goods and properties so as not to go into further debt. If you are an opportunist (in the positive sense of the word), this strategy can be very profitable in the short term since a recession/crisis lasts on average no more than a year and a half, which allows you to accumulate a portfolio cheap that you can resell for a lot more when the economy returns to normal. There are many strategies for getting out and profiting from a recession and making money. Economic winter doesn’t have to be winter for you. You can turn any problem into an opportunity if you have the right mindset and more specifically: ingenuity.
