This article is written by Ramanuj Mukherjee, CEO, LawSikho.
For those who prepare ahead, disasters are great opportunities. And those who do not prepare…Well, they cannot recognize opportunities even when it is staring them at the face. They misunderstand scams as opportunities and think opportunities require too much work, too much time, too much investment, too much thinking, a lot of talent etc.
That’s why there are so many scammers out there these days. People would not put in the work, effort or investment, but still want a big win. And who offers that? Scammers.
Anyway, let me tell you how smart people make money.
I invest in stock markets (always through index funds). I find it to be the most reliable long term investment. But I do not invest according to the advice of investment advisors. Most of the time, I hold on to my cash. And I invest only when there is a sharp drop in the market.
It’s actually not that rare. It happened yesterday. The Sensex crashed more than 300 points because trump tweeted something about not agreeing on a USA China trade deal.
So whenever the stock market takes a sharp downturn, I feel gleeful, because I can now buy good stocks for cheap as people are scared and are fleeing the markets, and selling their shares cheap.
I have faith in the Indian economy that in the long term it is bound to do well. So I am not worried about a small crash here and there. And I intend to hold my investments for 10-20 years. Hopefully 30 years.
However, what if there is a big crash? Of course, there will be one, and probably soon. Top economists around the world think that it is overdue.
Oh boy, my only fear is that the big crash will come and go and I will not be able to capitalize on it. What will I be doing when it comes? I have been planning for it over 2 years now.
Once in a decade usually, the market cycle sees a dip. It always happens. Then the stock prices crash.
The last major crash was in 2008, and it lasted for about 2 years. I was too young back then and had not started investing. I regret that.
It can happen in the next couple of years once more, and I have been waiting for exactly that. I have been preparing. I have been reading up on global economic cues. I have been keeping an eye on what certain fund managers and economists have been saying. Everyone knows it’s coming. Nobody can predict when exactly though, and that’s the fun.
I hope it happens a little later so that I can save up more capital by then, to invest. You can’t let such an event pass by without profiting from it.
It is so obvious, and still…
When it happens, you will see most people being taken completely off guard by it. 99% of the population will crib, scurry about and behave as if this was not supposed to happen to them and perhaps it is their personal bad luck that it has come upon them.
Many will lose jobs, but they are blissfully unaware of it right now. It is not hard to figure out who it would be, but those people are themselves least interested to know!
They have made no plans. Most of them do not have emergency funds. They are blissfully spending on their credit cards, taking car loans and home loans.
I have recently doubled my emergency funds. I hope you have one too! I am a risk taker, but knowing that I can go for 6 months without earning anything allows me to make bold decisions in life.
But the same people will talk about how unfortunate it is, although they can start preparing for such contingencies in small ways. Not to only survive it, but thrive!
Imagine, the economic downturn comes once every ten years, and still most people never prepare for it, and never think that they can turn it into an opportunity.
This is the 99%.
On the other hand, you have people like Warren Buffett, who have been sitting on a war chest of cash, not investing but holding on, waiting for opportunities just like this! In the last downturn in 2009, he made a lot of money too, by lending a lot of cash to Goldman Sachs for high interest.
He also made a lot of money from investing into and buying distressed companies during various economic meltdowns.
And then you have people like me, who understood this principle, even if late in life, and would gleefully wait for such events with the little bit of capital we have.
What about you? What do you do?
Do you foresee what is coming and prepare for it?
Here are some things you should do to prepare for the financial winter that is coming (we don’t know when, but it is coming). Sorry about the GoT reference, it is hard to resist. The winter may take longer to come, and that is totally cool. You would have more gunpowder when it does because you had more time to prepare.
So here is what you do:
#1 Assess your vulnerability to an economic downturn
Are you in a job that will disappear during a recession? Here are some jobs that are hit the most during economic downturns: stock brokers, property agents, capital markets and investment lawyers, civil engineers, construction workers, workers in factories that produce luxury goods.
There are other decisions that you should postpone until recession hits. One is higher education. You do not want to finish your masters as the economy enters into a recession. On the other hand, during the recession years, which will likely last for a couple of years, you are more likely to get acceptance in better universities because fewer people would apply!
Many lawyers get hit during this phase. Law firms freeze hiring and stop giving bonuses. Companies cut legal bills, especially optional litigation and deal costs. On the other hand, bankruptcy and restructuring lawyers, as well as banking lawyers usually have a great time.
You do not want to be looking for a job during a recession though. The gloom and doom mean you will get bad deals.
There are jobs that are recession proof. Professors, doctors, government servants, accountants are good examples. These people should use their stable income to acquire assets during this time of turbulence and their own relative prosperity.
Just like jobs, there are jobs that are prone to be hurt during a recession. If you expect it, you can prepare for it. For instance, you may not want to take a loan right now and expand capacity in a manufacturing unit. This is a very bad time to take that risk unless you are sitting on a lot of cash pile, in which case it would make total sense.
If you need investment to survive, better get it now rather than later. If your business is vulnerable to recession, then maybe it is time to think hard and add something that is recession proof to your kitty.
For example, at LawSikho we launched a course on Insolvency and Bankruptcy Code which is doing very well. We are soon going to launch a more comprehensive banking litigation course. When the recession hits, there will be a lot of litigation for money recovery, and our course is almost ready. We are adding courses on corporate restructuring and other courses more focussed on competitive exams as a hedge against the upcoming recession. We already took a small step by introducing a course on judgment writing, which is mostly for people interested in cracking judiciary exams.
When it hits, we will be very well prepared. What about you?
#2. Start reading financial newsletters
You do not want to be caught off guard when it happens. You do not want to panic, and you do not want to react to it. You do not want to hear that the country is in recession 3 weeks after it has begun. You want to keep an eye for the signs.
For example, the UK economy shrank rather than growing in December 2018. If this trend continued, the global economy could be dampened. However, since then, Eurozone has posted higher than expected GDP growth, although a tiny 0.4% in Q1 of 2019, therefore reducing the change of an immediate crash.
Keeping your finger on the pulse of the economy in this way is going to help you a lot. I rely on these 4 newsletters to keep myself abreast with important economic trends:
- Finimize (USA and global)
- Hustle (Entrepreneurship and US economy)
- The Ken (India)
- The Big Picture
India needs its own finimize but unfortunately, nobody has made one yet. 5 minute wrap-up by Equitymaster comes close though it is too focussed on equity markets.
#3. Develop your investment thesis
What do you invest in and what do you not invest in? I do not ever invest in stocks, because I simply do not have the time to do in-depth research or monitor prices. I have no time or intention to do day trading. I stay far away from such things.
What I do, brokers hate. Financial advisors do not like me at all. It is their nightmare
I buy index based mutual funds, direct plans (minimum management fee). I do not sell, I just hold them.
However, it is easy to do. Simple to execute. It is cheap and effective. It is not particularly risky given that my investments are very long term.
You need to see what works for you! Mine is based on convenience, long term goals and paying very low fees to fund managers to maximize growth.
How do you apply this wisdom to your career?
You need to keep a tab on things as far as your career is concerned too. For example, it will be harder for fresh graduates to get a well paying job, even from good law schools. The competition will be higher, so you need to prepare harder than ever.
I hope you will start to understand that your success in your career is also a function of the larger economy. You need to keep a tab on the bigger picture and start thinking about where the future is headed so that you are not getting caught by surprise every 5 years.
Most people go with the crowd and commit harakiri. They buy when prices are increasing and they hear their friends made money on the stock exchange. At these times, a bull run taking place, prices are high and therefore it is a very bad time to buy. But they buy at this point due to FOMO. Then comes the bust. This is the time to buy more, but they start selling.
This is when the 1% rich get richer because they do the opposite. They are not affected by FOMO.
Do not go where the crowd goes. This is true for your career also. The areas of the profession which are overhyped, too many lawyers are jostling to get into, those may not be your best bet.
Just like stocks, you want to find something with high demand that has not caught the fascination of the crowd yet, and therefore, the supply is low. These are the areas of practice where you will get a maximum premium for the work you will do. Corporate Tax is a very good example of this. This is why we are very bullish on our corporate tax course in the medium term.
May the wisdom of the market illuminate your career path too!
Btw, here are a few courses, the batches of which will close in the next 7 days:
Diploma
Diploma in Companies Act, Corporate Governance and SEBI Regulations
Executive Certificate Courses
Certificate Course in Real Estate Laws
Certificate Course in Arbitration: Strategy, Procedure and Drafting
Test Preparation
Judgment Writing and Drafting Course for Judicial Services
