Lessons From The Recession

by Garach
(Missouri)

I have people coming up to me all the time asking "what is your opinion on what caused the recession". My answer is usually "how much time do you have".

There are a number of factors leading to this. Greed, irresponsibility, over spending are just a few. Some folks blame the government for lack of regulation. Some folks blame the banks. Some folks blame the boys and girls on Wall Street.

I'm just a guy from Missouri. I don't have any special insights or knowledge that the rest of you don't have access to. What I do differently from others is when a financial crisis hits I start observing the patterns and behaviors of people like never before. I watch how the government is going to respond. I watch what investors on wall street are doing. And of course I watch what happens to real estate.

This last recession (technically the recession is over because we've had three quarters of positive GDP growth) should teach us many things. For example, we now know how important the banks and auto industry are by watching how the government bailed them out.

We also know that real estate can lose some of it's value. The bigger question is how are we going to respond. Are you going to join the old men at the coffee shop and start constantly bashing the government, the rich, and the stock market? Or are you going to stay focused on your own business and how you can invest in a recession?

Here are the top lessons I think we can learn from the recession:

1. Money isn't the most important thing- If the value of your portfolio is the most important thing in your life then you have a problem. If I lost my properties tomorrow or if my stocks went busted, my wife would still love me. Yeah it would suck. But I would still have love in my life. The recession can't take away our relationships or our faith. Anyone who deserts you when you're broke wasn't worth having in the first place.

2. The real estate market isn't always perfect- My apartments did better than they ever have in 2009. Yet the value went down. It's similar to a good company making good money in 2009 yet their share price goes lower. Don't pay attention to the fluctuations in the market. If anything use them as a buying opportunity when the market is down. I don't know what will happen one year from now, but what I do know is that in 10 years things will be better.

3. The rich get richer in a recession- How? Let's take Warren Buffet for example. Yes, his net worth fell in Forbes 2009 listing of the richest. But he kept his head down, went on a buying spree, increased his holdings in Goldman Sachs, GE, Burlington Northern, etc. so when the market improves he is going to be richer than ever. Don't believe me? Look at his history. I wouldn't bet against him. Same thing applies to real estate investors. The most successful ones I know went on a huge buying spree.

4. You must remain somewhat liquid- The people who went bankrupt were the ones who didn't stay liquid enough. Keep adequate cash so you can weather the storms.

5. Don't become a pessimist- We all have times where we are nervous and scared. The more you can keep your emotions in check and neutral, the better! It's hard at times and believe me, I have my moments. But those who can keep their head up and keep moving forward are the ones who will grow to the next level.

6. Don't rely on a boss or job to take care of you- If nothing else 9.7% unemployment should be reason enough to prove my point. I know a lot of good folks who lost their jobs. Most of their net worth is in their primary homes. Their second largest investments are their IRA's, 401(k)s, and savings accounts. This is a recipe for disaster in a recession. I'm not saying jobs are bad. That would be ridiculous. I'm just saying that having other investments to help put money in your pocket if you were to lose your job, such as rental property, is smart.

7. You need to be involved with your investments- The problem with a 401(k) is that someone else has total control of your investment. Money managers will get paid regardless of how your portfolio performs in most cases. Having a 401(k) or IRA is fine, just don't make that your only investment. Buy a rental property. Everyone complains that they don't have the time, knowledge, or desire to keep up with their investments. Make time, educate yourself, and find something to invest in that you enjoy.

8. Risk really is part of the equation- It seemed like we got numb to the word "risk". Kinda like your mom telling you not to swim after eating a sandwich. The truth is that investing does bear risk and sometimes that sandwich will cause you to cramp. Just remember, you can minimize risk through education. Know everything that you can about what you are doing.

9. Be careful of who you take advise from- Would you ask some one who never golfs how to swing a club? I wouldn't. And I don't take investing advise from people who don't invest. Everyone has an opinion, but stick to those people who know what they are doing.

10. Life isn't fair- I saved this one for last. It's just a reality. It's not fair that so many good people lost their jobs. It's not fair that certain people got bailed out while others had to fold. Get used to it, get over it, and move on.

I wish you all luck and prosperous investing in 2010!