Hi, I have a very general question / debate for you. Maybe the question itself is wrong or the approach but I send the idea and then we well see…
My question is who wins during a crisis / recession / societal event like a war and how to identify the companies/sectors that may be profitable and the ones to avoid?
It is quite obvious that the answer is case-by-case as one crisis do not looks like the previous one. Investing in a company like Amazon in 2020 was amazing while in 2007 a similar approach wel… makes no sense.
What is your approach during your recession to identify potential opportunities? (knowing of course the risks as well…).
Most of you will keep the “VT and chill” phylosophy (as I do) but I am wonder what you would do or what you’ve done in previous crisis. Who won during the 11S, 2007, 2020,…? A priori buying VT or anything during a crisis is great because everything is at a discount but the questions is more centered to the identification of specific sectors / companies.
I think the problem you will have is that if you are talking about current war in Middle East and Ukraine, all of it is already priced in. Same is true for recession expectations too.
So whatever you do , you should not expect outperformance. Such outperformance generally happens if you invest before the war starts because then you profit from unexpected event.
I am not suggesting to plan for a new war. But maybe similar concept can be applied for a new recession which is not obvious.
Just to answer the question - I have no idea who profits during these conditions and if it’s very consistent
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Hi! Yes, I was not thinking of a particular current situation or war. I was thinking about you know journal articles you always see where X person got large amounts of money in Y dramatical circunstance when everyone was loosing money.
I see, I understand that crisis / recession / wars / dramatical circunstances are already price in at the time when they arrive or they are highly expected.
Is it then a matter of just betting against the majority at a given time? That have of course a lot of risks.
Even if my questionsis merely theoretical, I give an example. During the last “bank crisis” of the Silicon Valley bank and Credit Suisse, I bought stocks from a few solid banks that were suffering from the fear and I got a nice return when the fear dissipated but well… it could have been the other way around I guess and this is just a very simple example, no that dramatic.
I would say there are two components:
- You have to be able and willing to invest at a time when most people either don’t have the means to or are not willing to because what will turn out to be real opportunities completely stinks at that time. There’s a real or perceived risk that those assets can go to zero and while it’s what makes them such good buys, it also means that, well, they can go to zero. Luck and survivorship bia factor into the equation.
Diversification of income, development of a good and up to date skillset, a good and active network of relationships internationally diversified and/or diversification of assets can help with that. If you are able to invest at a time when others are not, you can already skew the returns in your favor in a significant way.
- Is finding the right opportunities, which is what you ask. I can’t help with that as each crisis is different and our own skillset and network also impact our ability to identify and access opportunities when they appear. If I had to wager a guess, I’d say that alcohol and tobacco are likely to do well in most times of crisis (I haven’t checked for it and people also develop their own means when push comes to shove so that can affect official sales too).
I’d focus on being able to do 1. and then keep an open mind if/when the proverbial excrements hit the proverbial rotationary device if I truly wanted to find excrement covered gems; though buying the broad market at depreciated prices when others won’t/can’t would already be a pretty big win.
In the long run, there are population growth and new ideas and thus economies get bigger, so basically, everyone wins. In the current environment of an asset bubble, there is a deconnect of the financial system from the production system, i.e. growth is correlated to the creation of fiat currencies by the central banks. So the winners are those parties who can deploy cheap and plentiful capital or who can protect their assets from inflation.
In a crisis, economies contract, so everyone loses. Leveraged parties have to pay margin calls and use assets like gold and bitcoin to do so (so they also dip initially). If you can still deploy capital in such moments, your chance is greater to be a winner. But timing the market is impossible for us mere mortals.
Nevertheless, I play or played roulette on various fronts, no all of it successful
- Ukraine (e.g. Astarta, Kernel, MHP)
- Argentina (e.g. YPF, Cresud, Pampa Energia, Loma Negra, Burford Capital)
- Venezuela (e.g. Rusoro Mining)
- Russia (e.g. Gazprom)
- Papua New Guinea (e.g. Bougainville Copper)
A great resource for me is Weekly Dispatches - Undervalued Shares