Yes there is a new recession coming, that much is clear. The big boys are already selling their shares and moving into cash. But should retail traders and investors like you and me do the same?
In this blogpost about the coming recession, I take you by the hand and show you how I feel about it.
Research: Top millionaires are counting on a recession in 2020
According to a survey by UBS (a large Swiss bank), a majority of the top millionaires and billionaires are counting on a recession in 2020 .
By moving from stocks to cash, you take profits on previously taken positions and you have money available to quickly switch to other assets.
Warren Buffet is doing the same thing with is investment company Berkshire Hathaway and is now sitting on $128 billion in cash (and counting!)
Should amateur investors follow this example?
First; no one knows for sure whether a new recession is coming in 2020. Yes, economic growth is slowing down and in my opinion there is a lot of air in the market balloon. But there are still plenty of music to played, to keep us dancing on the volcano for a while.
Meanwhile there is also the opinion of the mega bulls who say that the recession is already over, because money growth is increasing again. I don’t believe in that theory myself.
Long or short term investing?
And then there your investment horizon. I think as a long-term investor you should not try to time the market. These investors are better off spreading their investments and apply the Dollar Cost Averaging (DCA) concept.
This way you periodically buy the assets that you think will be worth more in the future. So you invest in good times and bad times and you will have an average buy price at the end of your horizon.
If you are a short-term investor or trader like me, it’s always wise to have a so-called bias for the assets that you want to trade. That bias (bullish or bearish) is a view of the current market based on fundamentals (news, economic factors, etc.) and technical analysis.
Recession on the way = Bearish bias
As a short-term trader, I currently have a bearish bias when it comes to stocks. So I only want to short that market. There are of course exceptions when it comes to individual stocks, but if you look at indices like the S&P 500 or the DAX, I absolutely have no intention of buying that market.
I am not married to that opinion or bias and I’ll adjust it just as easily when the situation changes. Suppose the S&P 500 does dump as I expected, then the 2600/2650 level (based on technical analysis) is another great point to look at longs and start buying again.
Do I have a bearish bias on all assets because I think a recession is imminent?
For example, since December last year I have been building up a position in silver.
I am a trader so I have already taken some profit at the top and added in the dips on this position. But as a long-term investor you might consider buying some silver every month (DCA).
That is… IF you believe that a recession is imminent and like me, you think this asset is undervalued.
What you have to do…
When you read between the lines of this blogpost about a coming recession, you may already see that there is no clear answer.
Step 1: Inform yourself!
There is only one thing to do if you worry about this and that is gathering as much information as possible about the subject. Read about macro economic trends, repetition in patterns, etc. The best way to predict the future is to analyze history. This is difficult, because everyone has an opinion and a blog or YouTube channel on which you can express that opinion is easily made nowadays.
Step 2: Determine what type of investor you are or want to be
As I mentioned earlier, as a long-term investor you don’t want to time the market.
But if you absolutely want to…
You will have to invest time, money and energy in research, education and perhaps a mentor.
If you are interested in that, check out my stuff here…
You could also choose a middle way. Imagine that in step 1 you came to the conclusion that a real recession is imminent and that your portfolio might be affected. Then you could liquidate some riskier assets to have cash available with which you can buy any dips or other assets.
However, you’ll be on thin ice, because this is the first step to short term trading and timing the market …
Reasons why I think a recession is coming
My intention was not to make this article too colored and I advise you to go and do your own research… But I can’t help sharing an extensive article with you that partly shaped my opinion:
It is also funny to see how many people search for the word “recession”. Where did we last see that?
Perhaps you expected me to tell you specifically what you should do in your specific situation. Something along the lines of “Sell all your Apple shares now!”
Sorry if I disappointed you in that, but I hope you see that there is no clear answer. These are turbulent times and you are ultimately responsible for what happens to your money through the choices you make.
I would love it if we can start a nice discussion below, about whether or not a recession is coming. And how to prepare for that.
So share this article and light up those comments!