How to Prepare for The Recession like Warren Buffett

The following expressions will save you a fortune and reduce your anxiety long-term. I will paraphrase: Wall Street has predicted 3 of the last 20 recessions and crashes. Put 1,000 economists in the room, and you will get 1,000 different answers. Market timing doesn’t work. Stay the course. This quote from Warren Buffett sums it up: "Stop trying to predict the direction of the stock market, the economy, interest rates, or elections." Welcome to The Atlantis Report. “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.” - Harry Truman (US President 1945-53) This quote from Truman is just as relevant today. In a recession, companies typically look to cut costs any which way they can – training budgets are cut, working hours may be reduced, and when the outlook is really bleak, jobs are cut too. These are the top 5 things you need to do in order to prepare for the looming recession : #1. Invest every month, regardless of whether markets are going up or down, into stock and bond indexes. #2. Raise your bond indexes as you age. #3. Reinvest your dividends. #4. Never get too excited when markets rise or too depressed when they fall. #5. Take the financial media with a pinch of salt or switch It off entirely. Just look at Trump and Brexit. “Everybody” was so worried in 2016. Look at China and the trade war in 2018–2019. All the while markets quietly hit new record highs, as they always do long-term. Fear is profitable for the media but not the average investor. The impact of a recession can last a lifetime. Recessions are likely to affect your income (at the very least, it will be much harder to push for a pay rise), but it can also have long term impacts on your income that can last a lifetime. The risk is unusually high for new entrants to the workforce since it is in the early years of your career that you typically see the most massive jumps in salary. Starting a new job during a recession is likely to involve some compromise – perhaps starting at a lower level than you are qualified for or starting work in a completely different industry. Once you leave the workforce, your skills naturally diminish over time, and you become less attractive to future employers. And so it is vital that you continue to build your skills up. This applies whatever your age, fresh out of university, or after spending many years at work. Develop your skills, whatever the outlook is for the economy. When you are employed, take advantage of as much training that your company offers as possible. If you ever get made redundant, gaining access to these resources will be much more difficult and may come at a cost. Whether a recession is looming on the horizon or not, you should always be looking to improve and develop your skills. Of course, it looks great on your resume, but it can also open your eyes up to new opportunities in other industries or other occupations that are less prone to being cut during a recession. In order to avoid the risk that your long term earning potential is hit, it is imperative that you build your skills. For someone close to finishing university, a sensible option (should a recession be imminent) might be to defer entering your career for a couple of years and do some further education. Career risk management. The decision to work for a start-up, an established large company, or, indeed, the other government depends on your career objectives, but it also depends on your risk preference. For example, early in your career, it may pay off to risk working for a start-up with significant upside potential, but being aware that a recession may also hit it hard. At the other end of the scale, working for the government and the public sector can often (but not always) be the most recessionary proof place to work since job cuts are typically far less likely. A recession can also throw up career opportunities. If you can position yourself ahead of the competition a recession can be the perfect time to jump ship to a new or rapidly expanding industry. This may require moving to a different part of the country you live in, or to a different country entirely. A recession can also be the best time to start your own business. Everything that you need to start a business tends to be cheaper during a downturn – labor, rent, equipment, materials, credit, etc. A recession start-up will also have less competition and more negotiating power. What about your investments? For investors, opportunities exist across the business cycle. It is often at inflection points in business cycles that tremendous asymmetrical investment opportunities present themselves, i.e., where the odds are in your favor. It’s more important than ever to know where we are in the business cycle. The previous lessons in this course should give you a firm foundation in understanding the data sources to watch out for and how to interpret them. But how should you invest with this knowledge? This lesson looks at some of the things you should think about when it comes to investment across the business cycle. Inflation protection. Recession is inflations half-sister, Buy gold. All currency is considered "fiat" Fiat money is a currency without intrinsic value that has been established as money, through regulations. All printed money regulated by governments falls under this definition. Gold, on the other hand, is a real currency. Fiat currency is subject to inflation. Gold is not. For example, back in the day, you could buy a chariot, horses, and a driver for let's say 20 gold pieces. Back in the day, you could also buy. Let's say a Ford model T for 20 gold pieces. Today, you can buy a family car for 20 gold pieces. The power of what gold can buy does not really change; the same example for the family car can also be used for toilet paper or any other purchased goods or service. Gold is the only stable currency. Gold bullion is not considered currency and is usually subject to special care and sometimes assay. Minted gold coins qualify as currency. Both have lasting value. However, bullion has to be sold to convert to fiat currency or fiat credit, whereas coins can be used to buy goods without converting to cash. Only purchase Eagles, Maple Leafs, or Krugerrands. Equities have traditionally been viewed as an inflation hedge asset class since a company’s revenues, and earnings should also rise with inflation. From a long-term perspective, equities may, therefore, be considered an inflation hedge. However, this doesn’t always hold over shorter periods of time. Since equities can be thought of as a discounted stream of future cash flows, higher inflation means that the discount rate applied to those cash flows rises, which lowers their current value. Higher interest rates also increase the cost of capital to corporations, and higher inflation means that earnings may be overstated since they depreciate historical cost rather than the replacement cost of assets. To understand how to guard against it, investors first need to be aware of the difference between expected and unexpected inflation. Expected inflation is essentially the market’s consensus view on the future path of inflation. Since financial markets are forward-looking, they presumably incorporate this view into current asset prices. In contrast, inflation risk relates to unexpected inflation. Based on the period 1973 to 2012, periods of high but unexpected inflation have resulted in losses for stocks (versus holding cash). Commodities and gold, in particular, have been much more effective in protecting wealth. Defensive position. If you anticipate that a recession could be closer and perhaps more profound than other people in the market think, then there are various ways you can reduce your risk exposure – both across equities and to different asset classes. Being defensive may involve moving some of your investments to companies and sectors that have traditionally done relatively well during recessions. These non-cyclical sectors tend to be in demand whatever the state of the economy. Examples include utilities (for example, water and energy companies) and consumer staples (tobacco and beer consumption tends to change little during the economic cycle). Another option might be to move some of your wealth into cash. The advantage is that you are then able to react to opportunities - a market crash, for example. But remember, there is an opportunity cost in every decision you make. Moving all of your money to cash means you are not going to be able to capture any upside in the market, and that’s where the next important point comes into play. Focus on the long- term. Your investment horizon is one of the most important things. Are you investing for retirement or something else? When will you need to access some or all of your capital? With these questions in mind, it may not make sense in trying to time the top of the market if what matters is the value of your portfolio in 20 years. In fact, a drop in the stock market should be viewed as a gift – a chance to pick up assets on the cheap. Perhaps the best advice comes from the investor Warren Buffet: “Be careful when others are greedy and greedy when others are fearful.” This may mean reducing your risk exposure when everyone thinks the economy can only get better and increasing your risk exposure when everyone says it can only get worse. The economic trends are circular, every period of prosperity is always followed by a briefer period of consolidation or recession, and that every recession is followed by an extended period of economic growth. This has been true throughout history and there’s no reason to think this won’t carry forward into the future. It is the nature of people that creates these booms and busts and until the nature of humanity changes, the economic cycle is something you can bet on. Buffett has always favored waiting for a stock market calamity, aka “a crash” to simply wander around picking up bargains. It has made him one of the wealthiest men on the planet. That is why he has a “war chest” of some $120 billion. He’s waiting for the next crash to pick up bargains. If he lives long enough, he will. The best advice by Warren Buffet, for recessions or otherwise, is: Be Greedy where others are Afraid and be Afraid where others are Greedy. This means that you should not come under the influence of emotions and make any impulse decisions, for example selling your stocks if they take a dip.














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