A look at investments during a recession.
If you’ve paid passive attention to any financial news over the last few weeks, then you may have heard or seen a lot stirring in markets you’ve probably heard of but may not think affects you. True, there are those of us it may not directly impact. For any investors and entrepreneurs amongst us, however, it’s likely crippling some part of your plans whether you see it or not.
Let's get the basic economic upheaval factors covered before we put together a plan to use all this to our advantage.
- Political Trade Wars
- Over Valued Stocks
- Bearish Big Investors
- International Recession Risk
- Emerging/advancing Industries
Trade wars, Just the Politics.
The President wakes up, tweets New rules that aren't official, global trade suffers. It is, and isn't that simple most times but waaaay too long to fully detail without this being a political piece. Just understand that attitudes matter on every level, especially in business negotiations.
A trade war, for example, is an economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. Think of it like this, our 2 villages were cool until our chiefs started a personal dispute. Now if you were trading with the other village on a business level and not personal, your Chief is encouraging you to do or make whatever it is yourself, or pay more per trade.
Need a better, more relatable example? Take a look at how this type of stuff impacts Apple Inc - https://finance.yahoo.com/news/apple-44-billion-drop-shows-062810933.html
That Stock Price is Too Damn High
Overvaluation in stocks means, in spirit (kinda), that a company’s value is determined by the mood and feeling being high and less about their books being balanced. Company’s like UBER and BEYONDMEAT are examples of entities that opened to high valuation due to Brand movement and not net worth, returns and profits. Overtime, of course, they may be worth way more than where they start, but the issue is that 1st drop. This mainly applies to New companies on the stock exchange. Excitement marks the value up, newer investors Buy shares and lose a lot of money when moods give way to the actual performance from the business. Not to mention other economic factors that weren’t considered, The underinformed investor can lose half their investment within weeks and without a financial cushion to absorb the drop.
As Quoted by :
When Big Investors, stop Investing?
Considering the first and the following two points, its no wonder Big investors and wealth managers are holding money instead of moving it. When large entities slow traffic, then traffic is slow. Many smaller markets will take the hint, while a few emerging entities will whet the financial appetite and likely cause Overvaluation in trades. And we’ve already discussed how that's likely to end. A short article to study, for example, is; https://www.bloomberg.com/news/articles/2019-08-26/the-world-s-largest-wealth-manager-just-turned-bearish-on-stocks
International Recession Risk
National finances aside, we have a global economy that can cascade crippling effects across a multitude of international companies, which in turn will affect their local economy in specific ways. To get a clear idea of the several countries in or at risk of recession in 2019 (including Argentina and Germany) and how it impacts the Global Economy, refer to: https://www.washingtonpost.com/business/2019/08/15/key-countries-are-verge-recession-driving-fears-us-could-follow/
Cutting Edge Industry
Rather than being overvalued, look out for undervalued, emerging or advancing entities. Company’s like Wework is publically aware it may not see a profit for another couple of years, which gives investors practical insight. Look at whats practically trading; SolarEdge Technologies Inc (SEDG) has near tripled in initial value over the last 6 months. They are in an industry in high demand right now on a consumer level. Ride around and notice more and more houses with solar panels and green roofs atop the Manhattan skyline.
Over Coming the Upheaval
- Understand the Cause(s)
- Quarantine the affected entities
- Understand and invest in the future
There isn't a direct blueprint on how to win in a recession, otherwise, we wouldn't have them. What many of us can do is customize our own using key details. The Key to success pivots on seeing it coming and investing in the right industries. Using Trade Wars as an example of a root cause, The alternative effect is seen within National industries were the impact is felt the least. Those same industries have the opportunity to take advantage of competitors whos business greatly rely on consistent imports.
INVEST in American Made. The cold reality is, after the trade issues are settled those same companies may fall back into a lower status quo. Prior to that however, their stock valuation may trickle up as the economy rebounds.
Emerging industries will likely take one of the hardest hits as investors tighten up. The ones strong enough to stick through the dark times may Surge as resources and revenue balance out across the board. This likely won't apply to all fields, however. Check out https://www.investopedia.com/articles/stocks/08/industries-thrive-on-recession.asp For a short but detailed list of industries such as Tax Sevices, and Discount retailers that can actually thrive during a recession.
As far as the industries that don't thrive, It would be smart to track which ones have recovered from similar hardships and rebounded better than before. All, others; Quarantine. Big Wealth Firms are cutting their losses too so try not to cling to poor performing investments out of Brand recognization or personal interest.
If you really need an active hustle outside of rearranging your investment portfolio, browse this list of the 9 Small businesses to start in a Recession. Included in the List are Accountant services and Virtual Assistants. If you're an investor just starting out, Those are also two examples of industries you may want to allocate long term investments in.
Our goal isn't just to financial survive but to invest in the recovery. With recovery comes rebuilding, and you want to work for, invest in or stick with industries that offer current fundamentals or alternatives for future stability. If you follow renewable energy, pay attention to how they move in an unstable market. Not many homes may be ready for the large upfront investment. Yet after the economy recovers, more people might seek out self-resilient resources in economic hard times and will look to see how they can continue working safe and sufficiently when the Economy isn't. Who needs a power bill when you can collect your own energy right?
Have your own opinions or analysis?
Comment and Share so we can Build a Better Financial Foundation together.