As restaurants, shops, airlines and factories shut down around the world, a global coronavirus-fueled recession is no longer a looming threat. It’s here. During the last downturn, I lost a lot of money and I don’t plan on doing that again. So, it is a great opportunity to reexamine it all and turn it into lessons or personal reminders.
One of Warren Buffet’s most famous sayings is “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” So, realistically, my target scenario during a recession is to stay flat. But, my blue sky scenario is to actually try and make some money as the world collapses all around.
So, this is the list of 15 lessons learned the hard way from my own experience and observations:
1. Be OK with no longer making money
The first step to making money during the downturn is to be OK with no longer making money during an upturn. It hurts to miss out on gains, but missing out on gains is the only way to not lose money. Your goal is to time your asset allocation so that you have the least amount of risk exposure when the cycle turns. The problem, obviously, is that nobody knows when the cycle will turn.
2. Don’t panic!
This is truly invaluable advice from The Hitchhiker’s Guide to the Galaxy by Douglas Adams. So, make a plan and don’t make any hasty investment decisions. Try not to worry so much, especially if you are not near retirement age. If you have at least a 5-year investment horizon, recessions should be factored into your portfolio.
3. Buy gold
Gold is immune to recessions and so far it has been resistant to corona crises as well. Returns are usually inversely proportional to the returns of both stocks and bonds. So often, when other major asset classes fall, gold rises. A good hedge is to buy the largest, most popular gold ETF, SPDR Gold Shares (GLD). But in the digital age you can even buy gold in the form of a cryptocurrency with PAX Gold (PAXG).
4. Buy dollars