This post was originally published on October 15, 2009, during the global financial crisis. In the past 10 years we've come full circle and finally re—re–breached Dow 10,000 yesterday! Bust out the party hats and call up your favorite car dealer, because money is now raining from the sky! I fully admit that being defensive so far this October has been wrong. We've gone from recession to rebound by October 15, 2009.
Instead, I should have taken the illusory $400,000 in home equity increase Zillow told me, dumped it in my E-trade brokerage account, levered it up to $1.2 million and bought 35,000 shares of DDM (Ultra Dow30 ProShares ETF)! Too bad, I'm too conservative and not smart enough to realize the world has changed.
This year's rally has been outstanding, and the more I get to know the personal finance community, the more I realize that A LOT of you are making a lot of money. From one PF blogger who writes his site helped lead him to a job earning 50% more, to another's proclamation of a 10% net worth jump in September, it's clear that a lot of people are doing very well in this recovery.
I'm watching all of you, especially those who provide such transparent net worth updates!
I rarely hear negative anecdotes about job losses and foreclosures anymore. Instead, there are a bunch of you who are buying new homes (congrats and good timing), steadfastly paying off debt, and finding new wealth. The bus is like a can of sardines every morning, and I can no longer walk into my favorite restaurants without a reservation. If that's not the best indicator of a bull market, I don't know what is.
10 TAKEAWAYS FROM THIS RECESSION
1) Asset prices always snap back so don't panic!
We saw it in the 80's, the Russian/Asian crisis, 9/11 etc. It's therefore always good to have separate pools of money spread out among different asset classes. When one asset class gets too out of whack, re-balance! By the time we know we're in a bull market the easy money has been made.
2) The stock market doesn't care about unemployment in a recession.
What they care about are profits and operational leverage. The name of the game is survival. On the downswing, things might be brutal, but if you can hang on to your job, you get leverage on the upside because firms have less people to pay with a rebound in revenues. The good thing though is that the stock market is a forward looking indicator.
3) Never doubt the US consumer, despite the recession.
There is no consumer in the world who has the culture and the capacity to spend like crazy as we Americans. Retail sales are healthy, a computer upgrade cycle is in the works with the launch of Windows 7, car sales are rebounding, and savings rates have stopped increasing. I find it laughable economists are applauding our 4% savings rate now, when many countries in the world have a savings rate of 20%+. I have no doubt we will blow ourselves up again!
4) When things are good, people are more vocal about their success.
This then gets other people all riled up and motivates others to try and do better. People will talk about how much they made in this stock, or this property, or this private investment. It's just human nature that nobody talks about their losses. But remember the old adage, “don't confuse brains with a bull market!”
5) People have short memories.
Just 10 months ago, populist rage was never higher about Wall Street bonuses. The WSJ now reports 2009 bonuses will breach record highs for 2009! I stumbled upon an old post by fellow Bay Area publisher, The Digerati Life which has an entertaining amount of bashing comments. Since the general public are benefiting from the rebound, they aren't as gung-ho about lynching richer people anymore!
6) Luxury cars, watches and other non essential items drop like lead balloons in a recession.
They are also the last to recover in a rebound. It makes sense that nobody wants to waste money on superfluous things in a down market. Now is the time to go shopping for your favorite Patek Philippe, BMW, or Hermes Grace Kelley handbag before prices normalize!
7) Fear and greed are just two sides of the same coin.
The same people who were bailing out of stocks last October are the same people who are chasing the markets up today. Your profits aren't real until they're sold! I for one am selling stock every day and locking in any gains I have. The proceeds continuously get shoveled into my real retirement fund i.e. interest bearing cash money.
8) Firms tend to over-fire during the down turn, and then scramble to hire in the upturn.
You want to position yourself for the positive bull whip effect this 1Q09 as I believe it will be a hiring bonanza in whatever industry you are in. Have faith if there's anybody out there reading who is unemployed. You will succeed just give it some time!
9) Life goes on in a bull or bear market.
Cash is king and if you still have your job, nothing has really changed for the most part. You could have been in a coma for the past 18 months, and woke up to the exact same environment. Your friends and family are so much important than money.
10) Money is incredibly mental!
Dow 10,000 doesn't mean anything really. But if you were watching TV the several times the Dow broke 10K, you heard everybody cheer! Even I started raising my arms like a mad man! When the Dow was at 7,000, all the pundits kept talking about was Dow 5,000.
Now that the Dow is 10,000, you have morons like me posting these types of topics! Optimism feeds on itself, until one day all our hopes are achieved. Hence, always be optimistic, keep creating goals, and never surrender! Always have an investment thesis to act as your guiding light. Review it every year to make sure you want to continue investing in your holdings.
Another recession could be on the way. Here is a recession checklist to survive tough times ahead.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Manage Your Money In One Place
Sign up for Empower the web’s #1 free wealth management tool to get a better handle on your finances. You can use Empower to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Empower since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Let the bull market continue with stocks at all-time highs!