Investment Awareness During Uncertainty
The only certainty we have about 2020 is its uncertainty. Uncertainty is the mantra for 2020. And don’t forget to throw in a pinch of chaos and a dash of volatility.
From a financial standpoint, it’s hard sometimes to know which way is up… with the media and conflicting information from multiple sources. It’s hard for many investors to know what to do.
Uncertainty and anxiety lead to fear and this leads many investors into falling into the trap of hoarding cash – the fear of loss outweighing any other motivations in this time of crisis.
Sitting on the sidelines is the wrong way to emerge from a recession.
In a 2010 Harvard Business Review article titled “Roaring Out of Recession,” researchers found that during the recessions of 1980, 1990, and 2000, 17% of the 4,700 public companies they studied fared particularly badly: They went bankrupt, went private, or were acquired.
But on the flip side; surprisingly, 9% of the companies didn’t simply recover in the three years after a recession – they flourished, outperforming competitors by at least 10% in sales and profits growth.
The difference between the companies that faltered and the ones that flourished?
THE COMPANIES THAT THRIVED POST-RECESSION DID NOT GO INTO SURVIVAL MODE!
That was the difference between the companies that failed and the ones that thrived. The companies that faltered went into survival mode, making deep cuts and reacting defensively.
The companies that thrived? These companies that either stagnated or failed to offer a lesson to the rest of us. Limping through a recession makes it hard to recover or worse, digs a hole you can never dig out of.
The companies that thrived all had two things in common:
- They were flexible, ready to adjust, and willing to change.
- They kept their focus on the long-term.
These companies sought alternatives to their strategy and expanded their options.
Amazon is a famous example of a company that emerged from the dot-com bubble burst that claimed more than half its peers.
Amazon survived by expanding its operations. It launched Amazon Marketplace, its platform for third-party sellers right after the bubble burst and it further expanded during and after the recession into new segments (kitchens, travel, and apparel) and markets (Canada).
Amazon not only sought alternatives but it moved forward with a long view. Unlike other companies that laid-off employees and cut capital expenditures, Amazon took an aggressive approach to growth and we know how that turned out. Jeff Bezos, Amazon’s founder, and CEO is currently the wealthiest person in the world.
Amazon not only learned to survive a recession but it learned to thrive during one – like this last one induced by the Coronavirus. Amazon’s operations were set up to weather the Great Recession and this most recent COVID-19-induced downturn because of the long-term decisions they made back in the early 2000s.
How these companies survived a recession is a lesson for all investors – no matter how uncertain the times. The keys emerging and thriving are:
- Don’t sit idle.
- Adjust your strategy and seek alternatives.
- Invest in the long-term.
Don’t Sit Idle –
Sidelining your cash is the worst thing you can do in uncertain times. Not only is that cash getting eroded by inflation but the longer you wait to get back in the game, the bigger the hole you have to dig out of. Don’t sit idle and put that money to work right away.
Adjust Your Strategy –
Tired of the stock market roller coaster and watching your 401(k) rise and fall with the wind? Ultra-wealthy investors seek alternatives from Wall Street. They all started like the rest of us – drinking the Wall Street kool-aid – thinking that the only way to make money was to buy low and sell high.
The truth is most retail investors can’t even beat inflation. Most financial professionals (approximately 92%) can’t even beat an index fund.
The ultra-wealthy seek out alternative investments because they’re uncorrelated to Wall Street – free of stock market volatility. They seek out cash-flowing assets that are insulated from downturns that will ensure they not only survive but thrive in this recession but all future recessions – just like Amazon.
Invest for the Long-Term –
The ultra-wealthy don’t speculate. They prefer tried and true long-term investments that generate income and grow over time.
They understand there will be peaks and valleys but with illiquid cash flowing assets like commercial real estate and productive businesses, they have the assurance of knowing that there can never be a run on the market that will erode the value of their assets overnight like with the stock market.
Despite the current market uncertainty, there are always buying opportunities. Stay alert and maintain investment awareness to seize on those opportunities.
Remember these mantras to give yourself the best shot at thriving in these times:
Idle Cash Never Winds – Have an awareness that sitting on the sideline will not help your portfolio.
Be Flexible and Consider Alternatives – EVERY market has buying opportunities. They may look different in times of uncertainty but they exist.
Thing Long-Term – Don’t panic. Don’t go into survival mode. Plan today to build wealth for the future.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.