How would you prepare for a recession if you knew it was coming?
There's a lot of talk about how private credit and the "democratization of private equity" (opening up to 401Ks, retail investors) could induce a financial crisis if popular access outpaces regulatory safeguards.
While I frankly have no idea if these are reasonable fears, I wonder how one might have prepared for 2008 or 1929 if they knew what was coming
I don't think PE opening up to retail will cause a recession. At this point, the dumb money in crypto, the speculative amounts in the mag 7 and top tech stocks basically holding up the global retirement and pension accounts, and the declines in discretionary consumer spending are far more concerning. Oh, also labor numbers look like shit.
Anyways, economy bad, what do you do about it? Well, hug that job tightly, make sure you have 6 months stored away, and from a greedy perspective have a lot of money in bonds or easily liquid funds that you can use to buy depressed assets.
To prepare for a recession, especially if you anticipate one, here are some actionable strategies based on the most helpful WSO content:
Focus on Resilient Sectors: Certain areas in finance tend to thrive or remain stable during downturns. For example:
Skill Development:
Networking and Proactivity:
Financial Preparedness:
Adaptability:
Leverage Resources:
Long-Term Perspective:
By combining these strategies, you can position yourself to not only survive but potentially thrive during a recession.
Sources: How to deal with a recession career-wise? A few lessons learned during the previous GFC, How to deal with a recession career-wise? A few lessons learned during the previous GFC, If I expect to be graduating into a recession, how should I adjust my career path starting out?, A Guide to Surviving the Recession for New Grads, What does an impending recession mean for students wishing to pursue a career in finance?
I tend to take any claim of "deregulation" that allows the public to get directly involved in something as the harbinger of financial doom to be nonsense. Mostly becuase the general public is assumed to be way more interested in these things than they actually are and also because actual financial crises are triggered by those people who think they are smarter than everyone else and therefore should be the only ones allowed to take actual risk.
Nothing fundamentally changes. Continue to buy VTI on discount. Either the economy does what it always does and bounces back or because of our current braindead leadership doesn't and then my money doesn't matter anyway.
Unless you're older than 45 this should be the answer for everyone, unless you're living by the seat of your pants and getting laid-off will force you to sell securities to make rent, which is dumb anyway.
My daily life wouldn't change.
Is anyone knowledgeable about tech valuations worried about the AI bubble popping? Don't know what's to come, but it took until 2013 for the SP500 to recover from the dot com crash. I'm likely selling most of my tech stocks at this point...
Hold cash? Especially if you're young. Sell Magnificent 7 stock while they're high and prep to buy equities in companies that actually have sensible multiples with the proceeds.
"Surviving" a crash is easy. It's positioning yourself to take advantage of the turmoil that is difficult.
And as others have said, it isn't the "democratization" of private equity/credit that will cause a crash. It's the fact that retail investors are beginning to treat the market as explicitly an exercise in gambling, and not investing, that will cause pain. What do you think happens to the people who bought Bitcoin at $100,000 when they realize that crypto doesn't actually have a use case that isn't intrinsically tied to crime? They'll lose everything and demand a government bailout, but in between they'll be in dire financial straights.
Things haven’t been the greatest as of late for everyone so far. Hopefully a recession doesn’t happen and things pick up.
Are the Mag 7 high value firms? Yes. Are they trading at insane multiples? Not really.
I don't see how you argue otherwise. All of these firms (and many others, of course) are valued in a manner that can only be described as ludicrous. Every single one is valued on the assumption that generative AI is going to be totally and utterly transformative, despite absolutely no evidence to that effect. Adoption is slow and exceptionally unenthusiastic and there is absolutely no reason to believe any of these AI companies will ever be profitable.
Google/Alphabet is trading at a P/E ratio of about 25x. You are telling me that is some "insane" ratio? You are delusional.
Lol @ people thinking the risk is higher in the best companies in the world (Apple, Microsoft, Amazon, etc) instead of the opaque private credit “boom”. First Brands just imploded in under a week with billions in fraudulent off-balance sheet debt. That’s where the risk is.
Recessions are the best time to invest. This time it’s going to be a combination of the bursting of the private equity/private debt super bubble (imploding shadow banks, some commercial banks, and some insurance companies), residential real estate price to wage ratio correcting, cap rate increases on cre, bitcoin Ponzi imploding, cases of accounting fraud revealed (like Amazon web services), bursting of the ai bubble, and municipal defaults. All in all a good show. I passed the Athene building the other day and said “pay attention honey, you will hear about that name in the future”.
As for how to prepare, this is entirely a debate on resources. Do you have the average stock portfolio of a jr banker? Then just keep plowing cash into the market. Do you have a couple million stocked away? You might want to consider a cash bucket of say 100 - 150K in a highly lidquid cash equal account that you can tap into to purchase opportunities when or if the crash comes.
Anyone who tells you it is 100% happening this time because it happened before is an idiot. I can assure you the people that were fully invested in 2007/8 and never took out anything and rode the market all the way until now have done significantly better than those who have constantly been trying to time the market. After all, that next big one is just around the corner like it was last month and the month before etc. etc.
Time in the market always beats timing the market when you are playing the long game.
So are you guys bullish or bearish on stock market? Economy seems to be weakening, but maybe that hastens more rate cuts leading to (temporary?) higher stock prices
I have about 10% liquid right now
GOLD
There is no recession in the US. Do you know where in the world are we having a recession?
Countries in South East Asia and Africa. US and Europe (developed market) are fluorishing and it is not stopping anytime soon. All the innovation is concentrated in US and Europe. There is almost no innovation in Asia. Ok, China has Alibaba, BYD? Are you kidding me
Just look at the flows. Asian equities literally look like a mini playground and ATM machine for foreign traders to collect some yield and trade a few quarters. And that's it. No one is invested in Asia for the long term.
BYD can be an amazing business, while being a shit investment. That's China and their style of economic organization, everyone knows that their equities are trash, doesn't stop the world relying on them for just about everything physical.
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