March 11, 2020
Yes, these are the famous words inscribed on the front of the universe’s most useful book “The Hitchhikers Guide to the Galaxy”.
And never were those two words more comforting than today, after our stock market took its largest hit in history(!) and the Dow Jones nose-dived 2,000 points, ending an almost 11-year bull market.
Now the THGG does tell you some interesting facts about intergalactic travel: where to find the best Pan Galactic Gargle Blaster and the best rehabilitation centres to recover from drinking them, the importance of always having a towel with you and its many uses, how to properly insert a gargle fish into your ear, and the proper way to address a Vogon and exactly why you should never let one read you poetry!
However, the book is quite light on facts about Earth. Luckily for my readers, I have been getting all of you “recession ready” for the last two years with my many rambling posts and speaking appearances. But for those of you who missed out on my earlier warning or those of you who did not listen, it is not too late. We are past the point of getting “recession ready” and it is now time to do some “recession proofing.”
Markets have tanked. First step is DON’T PANIC. Just don’t do it. This is what kills people in crowds — the herd panics and people get trampled! Do not start selling your shares now. I know this is the polar opposite of my earlier direction, but at this point you are stuck with them. Never sell them on the way down. Now you need to swallow your medicine and it is going to be a bitter pill to swallow. This is the point I say I told you so and not just me, but all of those great men out there like Ray Dalio and Warren Buffett. Now you need to white knuckle it. Prices will go up… eventually. It is what the stock market does. Hopefully you were in solid companies.
Some respite for you, things are not as bad as you may think. There have been a lot of lessons learnt since the 2008 GFC. Donald Trump might not be very likeable, but he has built a very strong local economy in the US. The US has learnt a lot of lessons since 2008. They have adopted some ASIC policies from Australia and regulation on lending is tighter. Their banks are well capped and the system is not too leveraged. I think we will see the US becoming one of the cornerstones that prop up the world economy in this round of global recession antics.
The dark horse in this race is coronavirus . Do not be fooled friends, COVID-19 did not create this recession, it was happening regardless. This was just one of many catalysts that could have pushed us over. The fear I have is that there are a few other dark horses in the race that may extend the length of this recession: the “Green Swan ‘’ that I mentioned in a previous post <Words Break More Than Bones> and the negative cash rates of some of the world’s most stable economies.
I think we will see a quick bounce back, but it will be short lived. I have a feeling that we are in for a very long 18 months before we see real stability. It is likely that we will have a few micro recessions (in terms of length); however, i think they will be steep inclines and deep plunges.
What you need to do is work out your exit. If you are unfortunate enough to be stuck in the markets with the bulk of your investing capital and are not diversified in alternate assets then you should establish a plan. How much money are you willing to have at risk? Don’t be fooled, all investment is a risk. In my opinion, there is no riskier investment strategy than having all of your investing capital in the stock market.
What are your strong stocks? Large international businesses like BHP will weather the storm. Hold these until the water recedes. How strong is your constitution? if you cannot go five rounds, then you should not even be in the ring. Are you a shark or a fish? If you do not know what this means then you are a fish!
That is how money is made in this type of market. You need the fish to swim around in a frenzy, buying high, getting panicked and selling low. How much do you want to bet that Warren Buffett got out of bed this morning, called his team and said “okay guys, time to go to work.” If you want a strong share to buy, get some Berkshire Hathaway today!
I really hope that this next piece of advice does not need to be said, but if you own any investment properties do not even dare selling them!! This is the fastest way to lose your money. Ride this out — there is always a property spike and a buying frenzy on the back end… DON’T PANIC.
If you are scared and have very foolishly bought some negatively-geared investment property (firstly, shame on you, educate yourselves and don’t listen to idiots!), What you guys need to do isshore those up. Luckily for you, one of the first things the government is going to do is continue to drop the cash rate, which they will hopefully make the banks pass this on. Secondly, they will consider a stimulus package. If they are clever they will allocate some of this to the people with negatively-geared property as the blight of this type of investment could make the Australian economy implode in on itself. However that is a rant for another day.
You need to help yourself by offsetting these assets. Now, do not use your investment capital to shore up your other assets; it is the same as losing money. Your investment capital still needs to be working for you, otherwise when you come out of the other side of this recession you will still be five years behind where you started.
I do not often plug my own company or our investments; however, in times of pending disaster like this I will make an exception. I created my company with the specific intention of creating an alternate asset source that everyone could access, not reserved exclusively for wealthy and sophisticated investors.
Our investments offer a fixed two-year term — enough time to weather the recession storm. We pay 12% per annum interest yearly in advance (these are the funds you would use to shore up your other investments). Note that we take no fees, you get the whole 12%. We purchase direct assets; it is not a pooled fund. You get to choose what your money is invested in. Right now we are purchasing a sandstone quarry (sand being the second most in-demand resource in the world after water… so oil might be going down, but the price of sand products is always going up).
End Plug 😉
Guys, please DON’T PANIC. Make informed and thought out decisions. As I explained in a previous post “Diamond Tiaras and the First Great Recession,” recessions are inevitable. That is why I write about them… I eventually have to be right… right? 😉
I will make myself open to anyone who would like a sounding board to talk out their current situation. You can access a direct conversation with me through our website https://www.raic.com.au/.
In the words of Ford Prefect dolphinatic friends “so long and thanks for all the fish.”
(If you have not read THGG, get a copy from your favourite e-reader or pummel your local second-hand book store owner until they cough up the goods.)