Are You Prepared?
The inevitable is coming -- again!
Veteran observers of the economy are already
anticipating the next recession. The next recession? Yes, and you are
still waiting for the economy to recover from the last (this) recession.
Over the last 82 years there have been 13 recessions, or on average, one
about every 6 years. The difference with this last “slowdown” is the
length, depth and breadth of the downturn, causing this one to be dubbed
“The Great Recession”. This has been the worst recession since The Great
Depression, seriously impacting investments in all asset classes
throughout our economy.
Warren Buffet is an extraordinarily wise and successful investor. His
research, decision making and ability to influence the direction of the
companies he buys is legendary. He is not the average investor, to say
the least, but we can all learn from his investment analytics. As the
great Oracle of Omaha once said about investing, “be fearful when others
are greedy and greedy when others are fearful.”1 This statement is the
basis for the concept of “buy low and sell high”; sell into greed when
the market is hot, and buy into fear when prices are low and many
investors are selling.
Over the years, I have always encouraged our clients to invest for the
long term. All recessions are not created equal, many of them last six
to eighteen months. Between each recessionary period we usually have
both short term bear and bull markets. Many short term recessions only
impact value based investments; mainly the stock market and real estate.
Since most Americans seem to have about 90% of their assets committed to
real estate and stocks, bonds and mutual funds in some form, every
recession can seriously impact the average investor’s portfolio and net
How did your net worth fare during this last recession? What are you
doing to prepare for the next one, and the one after that?
There is no fool proof, single strategy to completely protect your
wealth from the vagaries of the ever changing economy, but there are
several steps you can take to prepare for the inevitable. They include
Broad asset allocation across different asset
classes including the stock market and real estate, plus equipment
leasing, BDCs, commodities, debt, energy, fixed income and insurance
Diversify into non-correlated investments such
as the ones listed above.
Invest in income-based products and reinvest
the monthly and quarterly income to grow and broaden your asset
allocation and diversification.
Utilize tactically managed portfolios run by
best of class third-party money managers whose style is to capture
as much upside as possible in bull markets and avoid as much of the
downside as possible in bear markets while still maintaining
liquidity and flexibility.
Invest smaller, equal amounts of money in a lot
of different individual investments. Avoid over concentration in any
one asset class or individual investment.
At ClearView we believe the best way to hold on to the money you have
worked so hard all your life to save and invest is to position your
portfolio to not lose money. If your portfolio suffers a 50% loss, it
will take about a 100% gain just to get back to even! Investing is an
uncertain science. No one has a crystal ball illuminating a clear path
to successful investing. All we can do is learn from the past, be
prepared for the future and ensure we take advantage of periods of
growth while remaining defensive during recessionary times.
What are you doing to prepare for the inevitable?
1 2004 letter to shareholders of Berkshire Hathaway