How to navigate the coming recession.
In a recent article billionaire investor, Ray Dalio, reckoned that we are about to experience a 100-year catastrophe, the combination of;
- A Covid-19 coronavirus pandemic
- A massive global recession
Been there, done that!
Ten years ago I was caught in the teeth of the 2009 Great Recession and, along with millions of others, was virtually wiped out. That recession was like a 70-year flood, the worst since the Great Depression. I was gripped by fear, I lost my home, my marriage fell apart and I spiraled into a six-month depression. Then, thankfully, I woke up and realised that I was still alive and that, although many kind people were wiling to help me, no one was going to rescue me. It was up to me to work out a plan to rebuild my life. The fog began to lift and I began to see things for what they were.
It’s been a ten year journey in which I have learned a few valuable lessons.
But before we jump into my recent learning, I’d like to share something I learned back in December 1981 while reading Dale Carnegie’s book “How to Stop Worrying and Start Living”. My biggest learning from that book was a simple technique to stop worrying; “Imagine the worst that could happen and then decide if you can live with it.” And then take action.
The Dalai Lama says something similar in “The Art of Happiness”.
“Don’t worry. If you can do something about the problem, do it. If you can’t do anything about the problem, don’t worry there is nothing you can do about it.”
I love that.
Before we can do something about the double-threat facing us in 2020 and beyond, we would be wise to do our best to see these threats with as much 20/20 clarity as possible.
Firstly, what is the worst that can happen?
How much of a threat is the Covid-19 virus? It could be a huge threat. It is highly infectious with some models predicting that up to 65% of the global population will be infected within the next two to three years; that’s over five billion people. There is a high probability of us being infected.
But only 1% of those infected are likely to die; around fifty million people. That’s a huge number if you focus on the death rate but consider the fact that, on average, we have a 99% chance of survival. Even among the most vulnerable segments where the death rate could be around 15% to 20%, the survival rate is still over 80%. So the probability of dying from Covid-19 is actually extremely low. We have a greater chance of dying from some other cause than we have of dying from Covid-19.
Since we, the ordinary man or woman, can’t do anything about the spread of the Covid-19 virus, don’t worry. But we can do something to reduce the impact of Covid-19 when we do get infected; we can ensure that our immune system is strong. That is by far the best protection.
In reality, Covid-19 isn’t nearly as scary as it seems, is it?
In fact, a global recession may be more of a threat to one’s well-being than Covid-19. A deep global recession poses a huge threat to people looking forward to a comfortable retirement. In my opinion, there is something worse than dying in old age (we already know that our days are numbered) and that is “running out of money before we die”. Poverty in old age is a terrible prospect.
The US stock market has experienced one of the longest bull markets in history and, by all accounts, a recession is overdue. As my dad used to say, “When America sneezes, the world catches a cold". This time around it may be worse than a cold. Fears over the impact of Covid-19 looks like the trigger needed to set off the panic that will result in markets around the world taking a dive. Retirement funds that are heavily invested in publicly-traded stocks are likely to be decimated.
But this reminds me of Sam Walton, the founder of Walmart. During one recession, the price of Walton’s shares dropped by $100 million in one day. When a journalist asked him how he felt about “losing $100 million in one day”, he replied, “I am not selling.” Walton understood that the price of the shares did not reflect the value of his company and that the price of the shares on the stock market was simply a reflection of the bipolar Mr Market’s (to use a Warren Buffett term) fears and not a true reflection of the value of his company’s shares. Had Walton sold his shares on that day, he would have locked in the $100 million loss. But, by not selling, he was able to wait out the panic and watch as the Walmart share-price bounced back and recouped the ‘losses’. He did not lose $100 million dollars in one day because he did not sell.
There is a 99% probability that, when you get infected with the Covid-19 virus, you will survive. And, if you don’t panic, you will also survive the recession. In fact, you will probably survive even if you do panic; maybe much poorer but chances are excellent that you will survive it.
And that brings us to the second learning.
This too shall pass.
But how long will it take before things start to get better?
All things being equal, the Covid-19 threat will last about two to three years. New and improved vaccines and treatments will gradually reduce the threat and ultimately contain it. By 2023 the Covid-19 threat will be over.
It may not be that simple with the global economy.
“The market always goes up in the long-term!” is a classic assertion but, as John Keynes observed, “in the long run we are all dead”. The stock markets could take decades to recover the losses; it took over twenty years for the stock markets to recover their losses after the 1929 stock market crash.
But that doesn’t mean a lack of opportunity to rebuild wealth. Warren Buffett, one of the most successful enterprising investors of all time, asserts that;
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold”
And that brings us to my third learning.
Every adversity has within it the seed of an equal or greater benefit.
“Every adversity, every failure, every heartache carries with it the seed of an equal or greater benefit.” (Napoleon Hill)
Mind you it is only “the seed of an equal of greater benefit”, not the whole tree of success. We must first find the seed and then plant it in good soil. After that, we must nurture the seedling until it reaches maturity and bears fruit. Only when the tree bears fruit can we harvest the equal or greater benefit. Achieving success is a lawful process. It takes time.
Here is something important to note,
“what you believe is more important than the truth”.
Some seeds may be easy to find while others may take years to uncover but, if you do not believe that the seeds are there, you won’t even bother to look. Only belief in the truth of Napoleon Hill’s assertion will empower you to persist until you find the seed.
In 2009 I sank into a deep depression as I watched my business stall and then crash. In the preceding four years I had done everything I could to reduce my risks as I watched the storm clouds gathering but I had allowed my business’ destiny to get wrapped up in a bureaucratic approval process that was beyond my control. I did not have the knowledge, skill or ability to navigate the adverse conditions, My business and retirement plans were wrecked.
Although I believed that there was “a seed of an equal or greater benefit”, at 55 I didn’t have much time; I needed to find a way to rebuild my retirement plan “in the shortest possible time, with the least amount of risk”. I found my seed, in fact a basket of seeds. I began to plant. I had to learn new skills. I failed. My seedlings died. I planted again. I kept persisting. I kept improving my skill.
Ten years later and another storm cloud is about to unleash the 100-year catastrophe that Ray Dalio predicts; I think it may be two 100-year catastrophes in one, like an earthquake followed by a Tsunami. Millions of people will watch in terror as the Covid-19 virus takes its toll and the markets wipe out their retirement savings. For many it will be a surprise, a nasty shock but not for me. Today I know what is coming and I am prepared for the storm. I know that I have seen this before and that I survived. I believe that, if something doesn’t kill me, I will not only survive this storm, I will thrive.
I am ready to thrive. The coming storm is bringing with it the life-giving water my trees need. My trees need the storm.
How different is this to my 2009 experience!
How will this economic storm affect you?
I really hope that you can discount Covid-19 as the minor threat it is to your personal health. It is just another curved ball. It’s more important to your longevity that you look before you cross the road than washing your hands ... do both.
But how will you fare during the economic storm that is about to engulf the global economy?
If you have a job in a stable company or the public sector you may not even notice the economic storm; like the person who built their house on a rock, the storm will come and the storm will go and your house will stand firm. You only have two big risks, retrenchment and retirement. Getting retrenched could spell disaster. And, if you are close to retirement, you may not have enough time for your retirement savings to recover. Prepare for those risks now while you are still secure.
Everyone else can expect to be impacted in one way or another, some more than others. Your future well-being will be determined by how well you navigate your way through this recession.
My hope for you is that you will take heed of these wise words from Nelson Mandela;
May your choices reflect your hopes, not your fears.
I hope that you will approach your challenges with a positive attitude and a strong faith that new opportunities will open up for you if you are open to new opportunities.
A positive attitude, a healthy diet and loving relationships will be your best protection during the coming storms.
Finally, remember that luck favours the prepared mind because luck happens when preparation meets opportunity. Understanding the risks is an excellent place to begin preparation.
Shaun Lindbergh is a strategy consultant to small business owners and Boomers who have not saved enough for a financially secure old age. He learned some hard lessons during the 2009 global recession and the years following the failure of his business. Today he understands that Henry Ford was right when he said, “If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability”. Today he is on a mission to help Boomers to “capitalise their decades of knowledge, experience and ability to grow a more resilient retirement fund “in the shortest possible time, with the least amount of risk”. Check out ShaunLindbergh.com for more.