The next Recession will be a major win for some

The ongoing US-China trade war has had its headwinds throughout the year. Reaching all time highs in the public equities market performance and also experiencing blood on the streets have both contributed to a fun-filled past 18 months. Volatility is back baby! A lot of naive investors have lost money during this period while some have made a lot during the same period. This will significantly escalate as the next recession draws closer. Selling at the bottom with major losses is an obvious rookie mistake but the mistake was most likely made because most people do not forecast their misery. Forecasting ones misery is an important step to protecting the downside.
Having 6-18 months of living expenses covered is an extremely important step to preventing major losses during a market downturn. For example, take Joe who spends $3,000 per month on expenses. This monthly expense includes rent or mortgage, utilities, food, bills, loan interest payments, entertainment, and so on. If Joe wanted to make sure he fully protects the downside then he would have $3,000 x 6-18 months of expenses covered in case a recession hits. This equates to $18,000-$54,000. Now, most Americans struggle to have this amount so they are forced to sell their homes below the market value during a recession because once they lose their jobs they are unable to cover the mortgage payments each month while being unemployed unless lifestyle changes are made. Forecasting ones misery creates that urgency and prevents costly mistakes down the road.
With most analysts predicting a recession sometime in 2020, history will repeat itself and there will be losers and winners. You ask yourself, who are the winners? The winners are those that scoop up the properties during such a tumultuous period. The winners are those that have the downside protected and purchase high quality opportunities on sale during a downturn. The winners are does that understand the meaning of stealth wealth and truly abide by this consistently through time. It may seem like a risky purchase during that time but again, history always repeats itself. Following the laws of physics on earth, what goes up must come down. Gravity somehow has its way in dictating the expected occurrence during a projectile motion. Applying the same principles and anchoring on history, the market always recovers at some point and those who took the risk purchasing quality assets during a downturn most likely will come out on top. It is tricky predicting the start of the next recession but there are robust models that can do a good job at accomplishing that.
Being able to anticipate the next recession is an obvious plus but again, it is difficult to predict and a model is as good as its inputs. However, always being ready trumps any unforeseen consequence brought about by the markets. In summary, we do expect a recession in the near term bringing an end to the end of the longest bull market in history. When that time comes, there will be winners and losers. To be on winning end requires thoughtful planning and considerations through time. After that has been done, sit back, relax, and enjoy the ride!


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