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Being "recession proof"
Posted on 7/8/13 at 1:40 pm
Posted on 7/8/13 at 1:40 pm
This is kind of a spin off thread, but something I've been interested in for a while now, and am growing more and more concerned with as I am in the infancy of my investing career(and probably moreso because of my naivety on the subject).
With the recent (2008) housing "bubble/crash" and the subsequent recession, and the inevitability of future bubbles/crashes (whether near or far), how does one become "recession proof", if there is such a thing? And who gets hit the worst by these recessions?
When the stock market crashes who feels the immediate brunt of it? Is it best as a stockholder to simply ride the wave and assume it will eventually recover, because history tells us it will?
I hear stories of people who lost millions in the 2008 crash. Where does this money go? And can it be recovered?
These may be silly questions, but again I am naive on the subject, and would truly like to be educated on it. I hope we can have an intelligent discussion about it without it delving into Bitcoin or central bank conspiracy drivvle.
TIA
With the recent (2008) housing "bubble/crash" and the subsequent recession, and the inevitability of future bubbles/crashes (whether near or far), how does one become "recession proof", if there is such a thing? And who gets hit the worst by these recessions?
When the stock market crashes who feels the immediate brunt of it? Is it best as a stockholder to simply ride the wave and assume it will eventually recover, because history tells us it will?
I hear stories of people who lost millions in the 2008 crash. Where does this money go? And can it be recovered?
These may be silly questions, but again I am naive on the subject, and would truly like to be educated on it. I hope we can have an intelligent discussion about it without it delving into Bitcoin or central bank conspiracy drivvle.
TIA
Posted on 7/8/13 at 1:46 pm to rintintin
It's all about diversity.
Real estate income
Stocks
Ownership in multiple types of business.
Etc
Real estate income
Stocks
Ownership in multiple types of business.
Etc
Posted on 7/8/13 at 1:52 pm to rintintin
if you own land, that's pretty damn recession proof.
Posted on 7/8/13 at 2:18 pm to rintintin
quote:No.
how does one become "recession proof", if there is such a thing?
quote:Cyclical manufacturers such as airplane and auto makers, steel and aluminum producers and most large banks which depend upon the national economy for their lending.
And who gets hit the worst by these recessions?
Makers of consumable products are considered the least affected by recessions, such as manufacturers of soap and other consumer cleaning/hygiene supplies, toilet paper, food and beverage producers and tobacco.
Those would be your Proctor and Gamble and Johnson and Johnson type companies but they still are affected because consumers switch to their cheaper brands to get by.
Posted on 7/8/13 at 2:33 pm to rintintin
quote:
I hear stories of people who lost millions in the 2008 crash. Where does this money go? And can it be recovered?
Um I'm not sure if this is serious.
But....The money doesn't go anywhere till you sell the stock. You technically only lost money if the stock took a dump and then you sold.
Posted on 7/8/13 at 3:20 pm to rintintin
quote:
When the stock market crashes who feels the immediate brunt of it? Is it best as a stockholder to simply ride the wave and assume it will eventually recover, because history tells us it will?
An important factor in investing is understanding what you own and what a market shock will do to your holdings. That would include devising investing parameters that you know will keep you from doing detrimental things to your portfolio and keep from panicking.
I have pretty much been a value investor as an adult. It kept me out of the stupidity of the tech binge/pre-revenue IPO's in the late 90's and subsequent implosion, made very good money in the market and sold most of the riskier holdings I had in May, 2008 and invested heavily back into the markets in Dec, 2008 through May/2009 and most of the rest of the money I have put in equities since then have been after significant declines. If you build up significant taxable holdings over the years it almost impossible to entirely sell everything when you have market/valuation concerns due to tax impact. You don't have to become a wizard to make money longer term - patience, rational thought, and capital/good income will serve you well.
Real estate is not recession proof, especially if those holding have to sell or find permanent financing while mortgage lending qualifications change drastically. One can make the points about property cash flow, etc, but many people become wealthy finding great value during times of great stress and illiquidity. That can be applied to the stock market, credit market, real estate, etc, it pays to have a plan and available capital to see it through.
Regardless, if the Fed hadn't taken huge steps the recent Great Recession would have been magnitudes worse, and no one knows how the next event will be handled/managed or bungled. Not a fan of ZIRP forever nor what it has done to/for some, but overall it was likely better than the next best alternative.
Posted on 7/8/13 at 4:04 pm to rintintin
quote:
When the stock market crashes who feels the immediate brunt of it? Is it best as a stockholder to simply ride the wave and assume it will eventually recover, because history tells us it will?
Maybe I am looking at it wrong, but the way I see it is this. If the market gets to a state where its totally wrecked and not coming up, well, I don't know where you are gonna put your assets anyways. Anytime the doomsayer's bring up the market collapse theory, I think to myself, well, I'm fricked if I kept the money in there, and I'm screwed if I took it out because all hell is breaking loose in the world so how am I going to use that money to buy anything anyways?
So, stay in the market I do.
Posted on 7/8/13 at 6:57 pm to rintintin
Diversification.
Or put in a more practical ways, always ensure you have a fluidity of choice. Don't put yourself in a position that a situation will dictate your choice.
For instance, don't put yourself in a position where you have to sell undervalued assets in other to pay an emergent liability
Or put in a more practical ways, always ensure you have a fluidity of choice. Don't put yourself in a position that a situation will dictate your choice.
For instance, don't put yourself in a position where you have to sell undervalued assets in other to pay an emergent liability
Posted on 7/8/13 at 9:50 pm to rintintin
quote:
I hear stories of people who lost millions in the 2008 crash. Where does this money go? And can it be recovered?
The value of your investment shrinks you don't think of it as money leaving. It is like owning an acre of land then finding out later that it is hazardous land. Your land value disappears because no one wants it
When you have lost a lot of money in the stock market, you have to look at the companies who lost money and ask yourself "is this company still a viable profit making company?" If yes you keep your stock and weather the storm, if not you discard it.
My friend's dad is a big investment broker and he made tens of millions betting on banks to recover when their stock hit near 0 because he believed they wouldn't go bankrupt.
Historically, holding blue chip stocks that have good management and a good balance sheet/business practices will survive recessions as they are not going to go bankrupt
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