Conversation between me and my friend Last week,
My Friend : " Hey, Baskar... What do u think about US Economic Slowdown?... Is it a Recession?.."
Me: " Well, yes this is clearly a recession. Fed Govt. will declare recession soon. But y r u asking so?.."
Friend: "Well... i just wanted to know that shold i exit from my current investments? bcoz my stock broker says Market is going to b very volatile for next year."
Me: " Well... it depends on your Goals. do u want money now?... r u near your goal?..."
Friend: " well... no... i don't have any goal. i don't understand what u want to say?"
ME: " well... if u don't have any goal or Time horizon than y do u invest in equities?"
Friend: "bcoz my broker says that equities give u high return. but now i m confused and panic bcoz of this recession in the USA that is affecting Asian markets..."
ME: "well... u have invested in good equity diversified mutual funds having a past record of minimum 5 years via SIP. so i don't think u should worry....."
Friend: " well...these r the advises during bull market.... what about recession?....what r the principles of Wealth building in recession?"
ME: " Ohh My God.... so u think that this is recession so principles of Wealth building will b un-effective?.... and now u want new principals of Wealth Building only bcoz this is a Recession..?"
Friend : "Yes"....
This is the problem with so many people... their stock brokers, relatives, friends and colleagues say them that this is a Recession so don't invest anywhere now, bcoz the prizes of the property will go down. the stock market will crash. the value of your investment will b down... so don't invest during the period of recession....
welll.....welllll....wellll......These r the rumors, Myths, Hype and Layman's talk..... this is not the advise or any scientifically proven fact that don't invest during recession.....
So What is Recession?...
see the graph.... well... according to graph Recession is a normal thing for any Business Cycle....
Whaaaaatttttt???????..........R U Kidding?........Recession is normal?...???... - U will ask...
Yes.... Recession is a Part of Normal Business Cycle..... See the graph again.....
what actually it is?.... well recession occurs " WHEN FOR 2 CONSECUTIVE QUARTERS GDP OF ANY COUNTRY GOES NEGATIVE"
GDP - means Gross Domestic Product (briefly speaking indicator of a financial health of country)
in every healthy business cycle recession comes every 20-30 years. A recession generally lasts for 6 to 18 months. Interest rates usually fall in recessionary times to stimulate the economy by offering cheap rates at which to borrow money. average recession lasts for 11 month.. The largest recession was THE GREAT DEPRESSION - 1929 in USA lasted for 43 months.
see the graph again.... TROUGH is The stage of the economy's business cycle that marks the end of a period of declining business activity and the transition to expansion.
The 5 stages of the business cycle r ,
1) Growth (Expansion)
2)Peak
3)Recession (Contraction)
4)Trough
5)Recovery
At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular, varying in frequency, magnitude and duration.
again see the graph.... once recession and trough is over than during recovery phase first the graph will achieve previous peak and after that the previous peak is broken.... Understand?...
so after recession, the new growth will breal the previous peak......
So u will ask now.... we r not Economists or an Economic philosopher like u.....
so what is the need to know all these things to normal people?.....
MORAL -
1) Recession is a normal thing for a Business Cycle.... so its the Opportunity to buy Assets at low prize. its not Time to Exit but Its a Time to Enter at the lowest level.... u r so lucky that u have an Opportunity to invest in recession.. it means that there is a discount in the market and 100 Rs. product is selling at Rs. 50 only.
2) Principles of Wealth Building r the same and unchanged for the Recession.
3) If your Real Estate Broker says u that don't buy in Real Estate right now bcoz of Recession.... Don't listen to him.... this is an Opportunity to buy a cheap property.... and remember these types of opportunities come every 25-30 years or may b only once in a life.... so recession is not a something to beware about but its an Opportunity...
4) If your stock broker says that don't buy stocks bcoz market is volatile.... don't listen to him... just buy stocks of fundamentally strong companies as much as possible.. Its a discount in the market. Don't Discontinue your SIP of Equity Mutual Funds Instead Increase SIP amount if possible.... Its a SALE in the MArket that very few people get in their whole life.....
5) Don't listen to anyone.... just listen to your Brain.... Just think that if the company is really doing a genuine business and its stock is selling at discounted price than company's real valuation than i Must buy it......
Don't Beware of Recession.... BE Aggressive.... its nothing but a SALE in the Economy.... Buy items as much as possible at discounted price..... it is quiet possible that u don't get another discount (Recession) in your whole Life....!!!!!!!"
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