Generally speaking, there are two modes of behavior you can adopt in life.
One is to view things through a prism of protecting the downside.
Make it all about holding on to the things you have. Avoid losses at all possible costs.
The opposite, of course, is to approach life with the intention of maximizing the upside – all while recognizing the inevitability of setbacks along the way.
The first approach, executed properly, will likely guarantee that you will avoid failure.
But it is the second one that will all but ensure that you will achieve success – often in well excess of your expectations.
And in today’s market environment, the difference between the two approaches is the difference between barely surviving the upcoming recession – and coming out of it wealthier than ever.
Let me give you a couple of examples.
Avoiding failure is pausing your contributions – or selling off your equity holdings when the market dips, because you can’t bear the thought of any additional losses.
(As an aside, I’m seeing more and more gloomy commentary on Twitter that suggests some folks are doing just that)
Achieving success is continuing to top up – and possibly even rebalancing your budget to free up even more money for investing.
Avoiding failure is giving up on real estate, because property values are finally declining and who knows what’s going to happen next?
Achieving success is acknowledging that real estate is now priced differently than it was last year.
It’s recognising that just like post-GFC, we will see some amazing deals in the next year or two.
And it’s doubling down on your target markets with renewed focus, tracking the demographics, rents, and prices, and staying in touch with your bankers to understand the right financing options.
Most importantly, it’s capitalizing on the opportunities that will inevitably appear once sellers capitulate.
Easier said than done, but that’s exactly how people felt doing all those “no brainer” deals back in 2010 and 2011 (hint: they did NOT feel like no brainers).
Avoiding failure is staying in your job, even though you know your industry is a declining one and your company won’t see any meaningful growth over the next 10 years. Because times are tough, “last in first out”, and no one likes to hear “No” for an answer.
Achieving success is refusing to let your skills, efforts, and time go to waste – and repositioning yourself accordingly. Even if that means a lateral move, or taking a temporary step back – so that you can leap forward.
Because whether you like it or not, the economic reality will catch up with you – and the recession is likely to accelerate the unpleasant moment of truth. The only option you have is to try and ride the wave, instead of letting it take you down.
Besides, a downturn can easily last a couple of years – a heck of a long time to be stuck in a job that’s taking you nowhere fast.
Unless you’re an entrepreneur, the playbook for building wealth is simple.
Maximize earnings in your 9-5. Have a decent savings rate.
Redeploy those savings in income-producing assets like equities and real estate.
Then, wait long enough for compounding to work its magic.
And no, that playbook hasn’t changed because the S&P is down 25% and the economy might enter a recession.
If anything, that playbook works BETTER now than it did this time last year – or at any point over the past couple of years.
In terms of anecdotal evidence, here’s what I hear from my high-net-worth friends and clients:
NO ONE is selling.
Unless you are a hedge fund manager, you don’t make money trading in and out of the market. Folks who managed to build up sizeable (think $5m+) equity portfolios didn’t get there by trying to time the market.
NO ONE has stopped building.
A good friend of mine is a real estate developer. Is he going to make less money on the projects he launched last year?
Of course. Rising interest rates will hit the ultimate value of the properties he has built when he finally gets around to selling them.
But his business model hasn’t changed. You buy plots of land at good prices, build a high-quality property, and aim to exit at a reasonable profit.
The only thing that has changed is the assumptions he is building into his new projects.
Another friend of mine owns a home services business. He just announced an expansion into a new market.
Will he see some near-term softness in his P&L? Sure.
But he’s focused on building a $200m+ business over the next 20 years, not on checking Bloomberg five times a day.
If you’re an entrepreneur, the market may not value your efforts as highly today as it did last year. But that’s obviously not a valid reason to stop putting the effort in.
Ditto for being an employee. The nine-to-fivers in my professional circle are busy interpolating what the new economic environment means for their employers and their clients.
Figuring out strategies to remain relevant and bring even more value to the table. Jettisoning projects that no longer make sense – and replacing them with ones that target emerging pockets of opportunity.
At the end of the day, there’s nothing wrong with avoiding failure.
At some point, once you’ve ticked all the boxes, that’s exactly what your strategy should be. And that’s exactly why so many truly rich people employ highly conservative investment strategies.
But until you get to that point, it’s all about achieving success. Act accordingly.
As always, thank you for reading – and good luck!
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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