How Money is Made During a Recession: Embrace Your Fears

The State of the Economy

I think we can all agree that we are in some type of slowdown, whether it’s called a recession or not.

The Growth Sector has many companies down by as much as 70% from their highs of 2021. The Value Sector, outside of energy, is down by up to 40% and has really been relatively depressed for half a decade. Silicon Valley tech companies have begun layoffs and the mood is a bit gloomy. And, to no one’s surprise, the politicians in Washington and Sacramento can’t agree on anything to slow the current inflation rate without putting a kibosh (wet blanket) on getting the economy to grow with strength and vigor again.

Over the last 100 years, we have had 13 recessions. Depending on your career and how your family was affected, you may have called these depressions.

There is a joke describing the difference between a recession and a depression. It goes: “When my neighbor loses his/her job, that’s a recession. When I lose my job, that’s a depression.”

However, there is a silver lining for investors. Fortunes have always been made coming out of a recession by proper positioning of assets and looking for opportunities. Remember that the stock markets can be six months ahead of the actual economy whether up or down.

Of course, if you have money working in the markets today, it is a painful experience watching values go down, which feels like a daily occurrence. Assuming you don’t need any of your principal to live on right now, never sell into down markets. 

Winners never do this. They reposition, watch, and buy into opportunities. 

Think Like a Contrarian 

Basically, you must think a bit more like a contrarian. Position your money to make money in the near future when the masses are running for the hills of safety and short-term CDs.

With inflation today, commodities and energy generally thrive, but their lives can be short-lived. Companies that are heavy borrowers of capital from banks and other lending institutions can feel the pain of rising interest rates, and they will be going up all year, which helps companies that make money in times of rising interest rates. Growth companies, such as the Tech Sector and very oversold, usually trim their payrolls because of increasing costs, which became bloated during the recent growth period, and politicians blame each other for ineptitude.

Your key takeaway here is to think like a contrarian. When everyone is selling and running away, you should be thinking about buying opportunities.

As long as you have some time available, behavioral and tactical investing can be your best friend.  When we look at opportunities, we see a sea of potential over the next 3-5 years, even with today’s pain – and we understand your pain.