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Seeing A Financial Recession As An Opportunity

“It’s easier said than done, but every single crisis can be an opportunity.” —Richard Harrington


In the challenging financial environment, we find ourselves in these days, it is very easy to get down in the dumps. It is hard to think positively when so many of us have watched our net worth shrink like a cotton T-shirt in hot water. The problem is, once you give in to a negative mindset, it can easily become an endless rabbit hole of pessimism. After all, being negative is easy. Being optimistic requires much more effort.


However, those who can resist participating in financial fatalism can potentially reap big benefits. Instead of seeing your environment as one of risk, try to see it as one with abundant financial opportunities. After all, many of today’s largest and most successful businesses were started during our country’s various recessions.


Businesses Started During Recessions:

• Apple: 1973, Oil Embargo Recession, 1973–1975

• Microsoft: 1975, Oil Embargo Recession

• MTV: 1981, Double-Dip Recession, 1980–1981

• Netflix: 1997, Asian Financial Crisis, 1997–1998

• FedEx: 1971, right after Deficit Spending Recession of 1969–1970

• Airbnb Inc: 2008, Great Recession 2007–2009

• Uber: 2008, Great Recession

• Groupon: 2008, Great Recession


Examples of Small Success During Recessions:

The first Snuggie (2008) was made by Scott Boilens’ mom. Scott was stuck in a very cold dorm room for four years while attending college and needed to stay warm. His mom put a single sleeve in a blanket so he could hold a book, or operate computer or the TV remote without uncovering. The idea stuck with Scott who then convinced his mom to make a dozen blankets with two sleeves that he gave to friends and family as a test market. His family loved the blankets. After a few more modifications, he lined up a manufacturer in the U.S. and connected with the QVC shopping channel. Snuggie was born during the Great Recession and was sold worldwide. Thirty million Snuggies were sold in just five years, which created gross sales of $500 million. Analysts believed this was the perfect product during the Great Recession because it allowed people to feel safe and warm in a challenging environment.


Premier Picnics (2020) in Rhode Island was started during the COVID-19 pandemic as restaurants and nightclubs were closing down or limiting business. Premier Picnic was founded by Elizabeth Salisbury and her daughter, who filled the shrinking dining experience niche but in an outdoor environment that was safer from virus transmission. The business provides luxury picnics with professionally set tables, flowers, placemats, chairs, pillows, blankets or anything needed for a top-notch picnic experience for two people or a group. They also provide first-class catered food and great desserts. You choose the location, or they have several preselected outdoor venues they can arrange. Although the business was started during a pandemic and an accompanying economic downturn, it’s had real staying power and has continued to do well after pandemic restrictions were lifted.


Investing Opportunities During Recessions:

ABC News reported the average stock market decline during a recession is a whopping 35.8%. CBS News reported that it takes three to four years for the stock market to fully recover after a recession. During the Great Recession of 2008, The S&P Index dropped 37%. In 2009, however, the index was up 24.6% from that low, according to Forbes.


Warren Buffet saw the cash and credit crunch of financial companies and acted. His investment company bought 500 billion in preferred stock in Goldman Sachs (paying 10% dividends). He created a contract with Goldman Sack’s that allowed them to repurchase these shares later at a 10% premium, which the bank bought back in 2011.


Buffet’s investment company also did the same thing with General Electric, buying three billion in preferred stock, paying 10% annually in dividends.


John Paulson was the man who bet against the U.S. housing market because he determined that consumers were in over their heads on their home mortgages. He made billions by betting against the loans in the futures market. As the great recession raged, he saw another opportunity. While the stock prices were significantly down, he bought billions in shares of Bank America, Goldman Sachs, Citigroup, JP Morgan Chase and many other financial institutions whose mismanagement had put their financial companies in dire straits. He made billions once the financial institutions recovered.


Carrie Piaskowski (an average, everyday investor) treated the Great Recession like a shopping spree. She and her husband put every dime they could scrape together into buying beaten-down stocks. When the stock market recovered, the couple had amassed a half-million-dollar nest egg.


Conclusion:

Although I admit it can be difficult at times, I try every day to see this recession as an opportunity. My family and I will continue our strategy of buying broad-based index funds, and we urge you remain open as well when opportunities knock on your door.


Larry



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