The Nomad Economist: Top 5 Ways to Benefit from this Inflation

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The Nomad Economist
Premiered Apr 30, 2022

A famous quote attributed to Stanford economist Paul Romer is: “A crisis is a terrible thing to waste.” When the electricity goes out, candle sales go up. There’s always a business opportunity in a recession.

Money doesn’t really disappear. People simply begin to save and/or allocate funds to pay off the debt, which created good economic days before the recession. Understanding this cycle will help you tap into the minds of consumers and how they think.

Smart businessmen profit from recessions. The whole cycle between boom and bust is vitally essential to the business. You want to buy low and sell high.

Warren Buffet – the smartest investor in the world- gave the advice to be greedy when others are fearful (during a recession) and fearful when others are greedy (in a boom) . So the smart businessman accumulates cash and borrowing power in a boom and buys heavily in a recession.

During recessions, smart businessmen do things they cannot easily do in good times, e.g., they rebuild, restructure, acquire new assets or companies, and they prepare themselves well for the next boom. First of all, they anticipate recessions and are ready for them. This means they have hoarded cash and have become leaner so that they can survive on lower levels of revenue and profitability.

 In good times, the supply of money and labor supply can be tight. Employees have other employment options because there are plenty of jobs available in the job market. When a recession hits, employees realize that they are lucky to have a job, so they better hold on to it. Therefore employees are on their best behavior during recessions.

Best time to restructure your business because there will be the least amount of resistance from your employees. Best time to rebuild things you want rebuilding because you have higher negotiating leverage over your vendors.

Best time to borrow money because interest rates will likely to be low. Best time to acquire customers from failing competitors. Good time to buy office space in geographic areas you want to expand because real estate will be cheaper.

The following expressions will save you a fortune and reduce your anxiety long-term, I will paraphrase: Wall Street has predicted 3 of the last 20 recessions and crashes. Put 1,000 economists in the room, and you will get 1,000 different answers. Market timing doesn’t work. Stay the course.

This quote from Warren Buffett sums it up. “Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.”  

 “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.” – Harry Truman (US President 1945-53),

This quote from Truman, is just as relevant today. In a recession, companies typically look to cut costs any which way they can – training budgets are cut, working hours may be reduced, and when the outlook is really bleak, jobs are cut too.

These are the top 5 things you need to do in order to prepare for the looming recession: #1. Invest every month, regardless of whether markets are going up or down, into stock and bond indexes. #2. Raise your bond indexes as you age. #3. Reinvest your dividends. #4. Never get too excited when markets rise or too depressed when they fall. #5. Take the financial media with a pinch of salt or switch It off entirely.

Just look at Trump and Brexit. “Everybody” was so worried in 2016. Look at China and the trade war in 2018–2019. All the while, markets quietly hit new record highs, as they always do long-term. Fear is profitable for the media but not the average investor. The impact of a recession can last a lifetime.

https://www.youtube.com/watch?v=h4vQ9mbKb3E

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