Ask HN: What are you doing now to profit from the current or upcoming recession?
I see comments on HN once in a while about how they did [clever thing X] during a recession years ago and made money. With volatility comes profit potential, and it seems clear to everyone that rough seas are ahead. What are people doing now to potentially profit, or at least insulate themselves, during this?
I liquidated my discretionary equities portfolio (not much in it anyway) about a year ago already. Still have my retirement in its roboadvisor mix of bonds, equities and don't plan to touch it. Wondering if it might be worthwhile to invest in short ETFs like SH, SQQQ.
217 comments
[ 2.3 ms ] story [ 246 ms ] threadI'm also stocking up on necessities; food in particular. Not only is there a recession, have you noticed how many crops weren't planted, and how much less fertilizer is being used? Livestock numbers are down, too. Famine is coming.
> I see comments on HN once in a while about how they did [clever thing X] during a recession years ago and made money.
Survivor bias. Most clever financial things/hacks lose money.
Thanks for pointing this out. The other option is that the clever thing ties you up so you miss out on other opportunities.
I'd argue we were already in a 'recession' many months ago. [0]
[0] https://news.ycombinator.com/item?id=29508238
I’ve done this twice before, and it’s worked pretty well so far. My DCA funds will likely be 5-10% of my net work at that point.
Also I've diversified my risk by selecting two U.S.-based exchanges/banks (Abra was the first and is currently the only exchange to get a Fed account). The likelihood that both stop withdrawals on the same day seems unlikely. Is it as safe as storing gold under my mattress? No, but the markets move incredibly fast. When I see an opportunity I'll need to move quickly, then get my purchases off the exchanges immediately.
DCA into ETFs with the leftovers.
Buy a little bit more non-perishable food than I need every time I go to the store. Extra bag of beans and rice here and there. Also eating unhealthier than usual since I figure if there's a food shortage or energy shortage during the winter I'd rather be 15lbs overweight.
Continue to learn skills that I think will be valuable in the future/will get me ahead of the average person in my field. I was a child in 2008 so I have never experienced a bad labor market, but I figure I just need to be more employable than average (if I am mistaken then that's what the 2+ years of savings are for). There is always money to be made and people will want to hire those with skills that can make them money. If tech is in a bubble then just being able to make CRUD apps wont land six figure salaries anymore. I'll need a good reason for someone to hire me.
You might end up regretting this one.
I recognize that 'gain weight for the winter famine' is a bit extreme but I'm just willing to gain 5 extra lbs than I normally would.
Around 2008, a typical property dropped to half its value, then doubled and tripled in the next five-six years. Just buy it and rent it out on a time limited contract while you wait for the property rebound.
Why do you say that?
There seems to be this idea among younger individuals online that because prices jumped so quickly that a correction is inevitable, and it’s just not. There’s a ton of demand still out there, and the second any sort of meaningful dip is perceived all those buyers will be right there.
Prices went up because a shit ton of money was printed with sub-3% rates. Why would any sane person with a 3% mortgage ever sell, especially when inflation is 9%? It’s quite literally free money.
I agree in general that waiting on the sidelines doesn’t guarantee you a better price later. The problem of there being other buyers wanting to scoop dips providing price support would only be fixed by those buyers loosing liquidity, which would likely impact any individual waiting on the sideline too.
People who stretched to buy at the peak of the market end up upside down, refinancing gets harder, selling takes longer, foreclosure starts… 2008 all over again.
May not be likely, but wouldn’t be surprising
Because they can no longer afford their morgage as the economy goes to the gutter and they get laid off + their purchase power gets eroded due to inflation? Or they got a new job, but now they have to relocate? Many reasons.
Prices sky rocketed as money was printed, now the shine has worn off and the fundamentals don't support sky high prices. With much the same story as a number of countries - interest rates causing cost of living hikes and wages not keeping place, the "sure bet" of the housing market is no longer, and the prices have dropped.
https://tradingeconomics.com/new-zealand/housing-index
NZ was living off that "they'll never go down" attitude. The people that bought in the last year are starting to hurt, and unfortunately/fortunately (depending on which side of the coin) the sentiment just starts shifting. Once it starts shifting, people get nervous - over confidence bidding is out the window. Even though we (theoretically) have a supply and demand issue, even though construction costs are sky rocketing, people start realising they don't need that 4-5 bedroom monster, or that 2nd holiday home that they can air bnb out.
Seriously at one point during I think it was 2021 - I was in a c/md level position, and our house went up more than I earned in one year - we're talking a fairly standard 3 bdrm house - nothing fancy. That was spectacular... that spurned on a lot of "mom and pop" investors to go nuts buying houses, when they shouldn't have. And now they're looking into negative equity territory.
My house has dropped more than a years income since it peaked. That's an average 4 bedroom place in Palmy.
[1] https://calculatedrisk.substack.com/p/new-home-sales-decreas...
[2] https://www.freddiemac.com/pmms
There's the idea among the older generation that just because assets have been in a secular bull market, that they will continue to rise up in price, and it's probably not the case.
Take what theses official mouthpieces say with a pinch of salt, because part of their box of tools is jawboning on TV. Fake it till you make it policymaking.
In any case, we definitively do not have millions of people sitting on ARMs that just went from from 2% to 7% like we saw in '08.
Keep some powder dry so you can pick up some good deals over the next 6 to 12 months (bonds and equities). Inflation tends to be sticky so it's quite possible that the Fed will have to raise rates more than their current target (which is something in the 5% range) - if that's the case then you'll probably want to lock in some longer term treasuries if they manage to get over 6% yield (not saying that's going to happen, but it seems like it could be a possibility and you'd want to be positioned to take advantage of that)
https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
So 6 months of that rate, regardless of when during the window it was purchased. But, yeah, after that it could either up or down. And you have to hold for at least 1 year, and lose 3 months of interest if you cash out prior to 5 years.
Anyone know what the equivalent of this is in the UK?
_Again_ buying gilt and buying an ETF that tracks gilt is not the same.
This is bad advice to give generally.
Yes there are tradeoffs but that doesn't make them bad investments.
As rates rise, the bond fund is buying new bonds with higher yields, so the fund owner makes up for NAV losses as long as they hold it long enough to match the fund duration.
Yes you're selling lower yielding bonds but like I said your replacing them with higher yielding ones, which contributes to your total return. This is true for short and long term funds. The key is to buy a bond fund with a duration that matches your planned holding time.
- More convenient than individual bonds.
- Can't estimate future liabilities perfectly and therefore won't be able to perfectly duration match using individual bonds.
- If we hit a recession and interest rates drop, you'll get a nice price bump from your bond funds when your stocks are dropping.
That being said, I do agree that the dangers and risk of bond funds and ETFs don't get talked about often enough, and that you should know what you're doing before buying them. If you have a short-term need for the money (e.g. need 100k for downpayment in 12 months' time), you should not buy a bond fund with a duration longer than 12 months. That is when you will hit the danger parent brought up where you will get a NAV drop and won't have enough money at the end of 12 months to meet your liabilities. In that case, you should really duration match [2] with individual bond that matures in 12 months.
[1] https://occaminvesting.co.uk/against-duration-matching/
[2] https://occaminvesting.co.uk/duration-matching-an-introducti...
- back in April, moved 401k fund from S&P allocation to cash equivalent (2% yield). Note: this wasn't a cash out, just reallocation.
- Bought long-dated treasuries (10 yr and 30 yr). Allocated through July and August. This one is not doing well, but allocation was sized appropriately (< 2% of portfolio).
- pooling any excess capital in a savings account until volatility calms down.
- have a couple rentals and plan to continue holding. It will be interesting to see some buying opportunities in the upcoming year or two.
Thanks to new contributions my net worth since last year is "just" down -11%. I haven't increased the rate of my new contributions because I have always dumped all my savings in the market since forever, I never kept any "dry powder" for moments like these as I always thought it was too much opportunity cost. Actually, thinking about it, the rate of new contributions significantly decreased this year because a good chunk of my pay is in FAANG RSUs :-)
It sucks, but I know I don't know anything and I can't risk timing the market and being double-slapped (first slap: taxes to liquidate the portfolio; second slap: not catching the market rebound, when/if it will happen).
Again, it sucks when you think how much stuff I could have bought with the ~$800k I lost on paper. My parents, old-school folks, think I am completely insane and irrational for letting this happen, and they also though this in March 2020 when I didn't sell. I literally have my dad texting me every other day begging me to sell. But surprisingly you get used to it, and I do not think I would panic, nor change my plans, even if we go much lower from here.
Monetary policy and stimulus during COVID caused a currency devaluation. If nothing else changes, the value of assets should increase, relative to a currency.
The same thing happened with monetary policy in March 2022. Interest rates went up, stocks went down.
I'm curious what others think.
[1] https://fred.stlouisfed.org/series/INTDSRUSM193N
[2] https://fred.stlouisfed.org/series/NASDAQCOM
But don't do it with more than 5-10% of your savings on one assumption/prediction.
Under either of those, now is not a good time to sell. The only reason it would be a good time to sell is if the economy never recovers… now that would be a once in a lifetime experience.
This all operating under the assumption you don’t actually need the cash in the near future if you have enough liquid to cover a few months of no income.
In this sense it will be much different from your average recession. Add to that the other demographic changes as Baby Boomers age out of the workforce, and we're going to have a labor shortage for the next several decades at least.
Some people with Long Covid can still work, but their brain fog makes them unable to work in their former capacity. So any job that involves a very high-functioning brain -- from coding to surgery to piloting an aircraft -- may become extremely hard to fill as time goes on.
That said, I've been a reluctant member of the disability community for several decades, and I can also state that ME/CFS has a heckuva lot of overlap with Long Covid. The disabled community has called a lot of the things that have happened this entire pandemic, while 'experts' have gotten a lot of things wrong. I'm telling you what all the disabled people, who have been right this entire time, are saying: a lot of businesses are on the verge of collapse, because of long covid and other covid-related reasons (like, getting burned out from getting covid 3 times a year).
Go to a subreddit for nurses and see how things really are. Go to a subreddit for teachers. Our hospitals are going to collapse, I predict in a few years, if we don't change course. Our schools are going to buckle under this strain. How functional is an economy with a 36 hour wait to get in the ER and terrible educational options? What happens when all the flight attendants, teachers, nurses, doctors, bus drivers, waiters, cooks, and so on either get too sick or too burnt out and quit en masse?
That's why I'm saying it's not just "a recession," it's that plus...a whole lot of other huge economic issues.
I understand if you think this makes me sound alarmist. But, FYI, when I lived in NYC and I warned that our laissez faire attitude to the air at Ground Zero was going to give thousands of people cancer, I was also called alarmist.
As Sarah Kendzior says, it's a sin to be right too early.
Go out, in real life and you'll see that it is not that bad as media, full of emotions and sensations, told you.
That said, the places I do get out to -- medical facilities -- are the places I've been talking about. In the red state I used to live in, I saw tons of unmasked or poorly-masked healthcare workers, many of whom had had covid. In the blue state I now live in, healthcare facilities are understaffed, and it's only getting worse.
I repeat: if the question is about how to profit (or at least not lose) in the upcoming economic climate, one way to do that is to understand that healthcare, transit, education, and other in-person workforces will be severely stressed. I don't know how to make money on that, but at least you have the full picture.
What is wrong with unmasked healthcare workers?
Brain scans of folks with Long Covid are showing brain shrinkage. PET scans are showing many areas of the brain affected.
The only prevention for Long Covid is not getting Covid, and that's still mostly achieved the old-fashioned way with a combination of high-quality masks, ventilation, and air fitration.
The Texas Infectious Disease clinic has been using elastomeric respirators for years with their TB patients -- that's honestly the standard all healthcare workers should be using right now.
Btw, long covid could be a consequence of lock-downs and interruption of social contacts that we never had in history. Anxiety, reduction of movement, less working, increased consumption of fear spreading news and amount of time a front of screen... But sure, you can blame virus if you want. Or experimental vaccines.
But the TL;DR is: - Long Covid is for many sufferers, MECFS plus some extra issues like breathing problems and organ damage - MECFS is one of the most disabling illnesses out there, with some of the least-good treatment options - Some folks with either illness improve with time, but many do not, especially because there really aren't treatments right now except for rest - The level of brain fog is so severe people often become aphasic and disoriented. So it's not only that brain surgeons will have to stop doing surgery. It's that people working at an ice cream shop may not be able to count change. Severity varies by individual of course.
And finally, at the beginning of the pandemic we were hearing about the concept of "hybrid immunity" -- that basically, getting covid was good for you, because it made you extra immune to getting it again.
As time has gone on though, it appears the opposite is true. Each infection has the potential to age / deplete T cells, making a person less immune not only to another round of Covid, but to a variety of infections. So a lot of mild diseases that maybe before were kept in check and had an R0 of .95 will, with a more immune-compromised populace, turn into having an R0 of 1.15 or something. People in general will be sicker, longer, than before, with a variety of ailments, because Covid is harming their immune systems.
So this time it's different? You may be interested in the book This Time Is Different: Eight Centuries of Financial Folly:
> Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters.
* https://www.goodreads.com/book/show/6372440-this-time-is-dif...
In this particular time, there are in my opinion some extra gnarly risks that most people aren't talking about.
Gamestop? Come on.
I can give you loads and loads of examples where you could have held and suffered much greater losses over time. Last year I "invested" in $FSLY. Look at the stock performance. It would need to go up 900% to get back to its 2021 peak. Can it happen? Sure. Would you buy the stock thinking it could do a 900%?
tax implications, asset diversification, ebbs and flows of markets, etc. all things that can be rationally discussed from a risk management perspective. wealth management strategies that are reactive? eep
It sounds like your account is mostly taxable, have you ever considered getting your 3-fund exposure through a '90/60' fund like NTSX? The fund uses bond futures to get the increased exposure. It also has some tax efficiencies vs bond etfs. There is a US (NTSX) and International (NTSI) version.
You could allocate 2/3 of the portfolio to NTSX/NTSI to achieve a 60/40 and then have the rest for either opportunistic market timing/security selection ("dry powder") or as an allocation to alternative beta (say something like managed futures, MLPs, private businesses, etc.)
Obviously, taxes are a primary consideration, but I find these types of funds interesting in theory!
Having a close relative, and one that many people look up to, actively „sabotaging“* your resolution, is really next level!
*) I know your father only wants the best for you and this is in no way meant as an attack.
It's easy(er) if you never log into your account(s). I haven't gone in since January when I topped up by TFSA (~Canadian IRA), and my retirement account (RRSP ~ 401(k)) is automatically deducted from my chequeing account.
I have no idea if I'm up or down and by how much.
I said my net worth is down 11% from last year, and my YTD portfolio return is roughly -21% or $800k.
Also, bare in mind the only way to make money from a short position is to know when to sell - so how much further do you think markets will fall?
I’m not recommending this. Be careful. It’s daily leverage (intended for short term use). If you look at it over longer periods, there is very very substantial drag. As a short term gamble with a single digit percentage of your portfolio, maybe.
See also this article about risks of leveraged ETFs: https://www.bogleheads.org/wiki/Leveraged_and_inverse_ETFs
Edit: here’s a chart comparing TQQQ to plain QQQ: https://totalrealreturns.com/s/TQQQ,QQQ
Their real use case is for day-trading.
I’d not purchase short ETFs unless you know what you are doing. They are not the same as your standard long ETF. They have to pay for the cost to borrow, likely have much higher management fees than eg Vanguard ETFs, and of course in the long run are not something you want to hold.
You’d probably be better off holding short term treasuries (basically cash) hedged with some 1+y calls on broad market funds. If you want to buy back in sooner you could sell medium term puts. Or just lock in the gains you already made by purchasing now.
Please please please before you buy a bond ETF recognize that it’s not the same as buying a bond. With a bond index you can lose money at mark-to-market that you’d only recoup after decades of interest or if we want back down to lower rates.
While, in my opinion, the 1y outlook was clear 1y ago, it’s a lot less clear now. I don’t think anybody knows how high rates are going to have to go to stop inflation, the Fed timeline, and how bad a potential recession would be. An amicable end to the war in Ukraine could also fix the energy crisis quickly.
Sounds super interesting but could you give a layman's explanation please?
You buy a $1000 bond that pays 2 percent for 5 years. Great, that's what you get. A fund buys the same bond and then interest rates rise, so they sell the bond at a slight loss (vs $1000) so they can invest in something with a better return. It becomes a bit of a game and can lose or gain vs the fixed return of buying and holding actual bonds.
Specifically: “Thus, the distinction between a non-rolling ladder (designed to meet date-certain future liabilities) and a rolling ladder (which essentially represents a personal bond fund) is much more important than the difference between a rolling ladder and a bond fund.”
A one-off individual bond purchase, held to maturity, would be the simplest example of a “non-rolling ladder”.
But even then, the individual bond if marked-to-market (or if you needed to liquidate it before maturity date) would have fluctuating market price. It’s only the intent to hold it to maturity that gives one the ability to choose to ignore the intermediate market price. And if you’re reinvesting it into more bonds (a “rolling ladder”) then you do have to care about market prices at reinvestment time regardless.
You're halfway there. Let us know when you get back in.
In case you’re being snarky, it’s easy for me to “beat” the market now because I just have to buy back below like 5% off ATH. I also don’t think I can time the market any more, I (and many others actually) just saw a special macro opportunity during the end of the last bull run
If you go all in next week then yeah you're all the way there so congrats. If you take your time getting back in then it may work, may not, but good luck either way.
...really?
company 1: 2-3 years
company 2: 2-5 years
again.
This recession I bought a significant portion of select ‘pandemic stocks’ I thought have good fundamentals after they dropped 70-90% earlier this year (I was already all in cash anticipating a recession). My hope is in ~3 years that investment will 3X when the market recovers.
I wish I had better ideas on the next opportunity this recession, but by definition they will always be contrarian. My next big bet will likely be on myself with a startup, which I haven’t done in a decade.
- Coinbase
- Cloudflare
- Netflix
- Peloton
- Roblox
- Shopify
- Snapchat
- Snowflake
- Unity
Peloton is the only one I regret so far — seems to be a falling knife I tried to catch, but still have some hope they can offload the inventory, grow distribution through Amazon/retail and drive up subscription revenue. But seems increasingly unlikely.
The ones I invested in were growth stocks that saw particularly steep corrections of around 70-90% when I invested.
My bet was that though they were overvalued, it was an overreaction that would on average get me a ~3X return in 3 years.
So yes, they are similar, but IMO the similarity was an overreaction that was not based on fundamentals. As mentioned earlier, I'd make the same bet again now for all but Peloton.
Keep in mind these are longer-term (3+ year) investments. If you watch the market, the wild swings (especially in these stocks) still tell us the market doesn't know how to value them.
Back to the OP's question, to get any significant outsized return you often have to be contrarian AND right. I felt I knew enough about the fundamentals of these companies and the market that I had enough confidence to make the bet. Only time will tell.
Don't time your investments - use asset allocation to decide what you invest in and then always just do what it says.
So if your target allocation is 75% stocks and 25% bonds, just buy stocks and bonds in the appropriate mix with your savings to keep your ratio level. This tends to have you buy stocks when they are low and sell high by the nature of maintaining this ratio.
Do this rebalancing twice a year. For most of this, this will mean just buying more of something to rebalance with the savings from the previous six months.
*and it looks like just the beginning
https://www.shrm.org/resourcesandtools/hr-topics/talent-acqu...
> Yet economists seem to agree that if the U.S. is in a recession, it's unlike any previous one.
> "This is going to be about the most pleasant way to go through a recession," said Ron Hetrick, senior economist at Lightcast. "Employers are still starving to get employees. They were never able to hire them when they had so much demand. I absolutely believe this is not going to be the kind of pain that we usually associate with a recession, historically speaking."
There is just no way that the same amount of work is getting done now compared to 3 years ago.
> But it is. Total employment is half a million higher than it was before the pandemic, and this recovery includes virtually every individual industry. The only real exceptions are restaurants and hotels, which are 300-400,000 short of their pre-pandemic numbers, and government, which is 500,000 short.
https://jabberwocking.com/employment-has-recovered-to-pre-pa...
Of course! Rich CEOs fired a bunch of otherwise competent blue collar people when Covid hit to protect their downside cash flow risks .. which turned out to be short-term risks, and now those workers have moved to new employers and are still getting up to speed. Or they have left the market completely.
My guess anyway, having watched my F100 company seemingly do this.
I am waiting longer for a deeper crash. If I miss the boat, that is fine (I would rather miss the boat than risk getting on a rocky boat).
Weirdly, for us non-US tech people who haven't accumulated millions at FAANGs, finding a good remote job could be the best move. In tech, your "recession" is still better than our non-recession!
Main thing is look after your health.... !