Editor’s note: This article was first published in August 2013, in the aftermath of the 2008 financial crisis and during Spain’s recession; its examples, such as the dot-com crash and the banks, reflect that context.
It has always been said that crisis equals opportunity, but you will only find those opportunities if you have prepared properly before the crisis arrives. The truth is that making a lot of money is simple.
We are not talking about business here, because when a recession begins, everything falls alike. The panic it creates holds back spending amid the uncertainty.
Every company will inevitably see its profits seriously hurt, but in this case widespread panic will be our vehicle for growing our capital.
If unemployment goes up, you can make a lot of money. If companies go bust, you can make a lot of money. If a country goes under, you can strike gold. And it doesn’t matter whether you are an electrician, a bricklayer, a waiter or the CEO of a large company. We all have the same chance of pulling it off, and all you need is to get up to speed on financial vehicles or investment products. Yes, you have to do the thing you find so tedious: read and study. Remember that opportunities are not for the lazy.
Every crisis in history has started the same way. They usually come after a bubble of some kind, whether in tech companies, construction or “junk” credit… (Read: the 4 phases of a bubble).
During the economic recovery and while the bubble is building (when we are making money), that is when we can make money from the upswing, when we can start our own business and invest in the stock market, since we are entering a rising market. It is also when we need a financial plan to save enough.
Just as the economy gets reformatted every so often (the poor go back to their place and the rich prove once again why they are rich), we need to review our investments and savings to make sure we can sit on cash when the time comes.
(Read: Why the poor keep getting poorer while the rich get richer)
One of the best pieces of investment advice I have been given is “let someone else make the last euro.” In other words, although reinvesting profits in the business or in shares is generally advisable, there are signs that tell us when it is time to take precautions.
Once the crisis arrives
If the crisis catches you with a good amount of money saved, you can make money like the professionals do. The first step is to recognise what kind of recession is coming and pick the companies that will be hit hardest. If it is a crisis like the dot-com crash, we will pick tech companies; if it is another financial crisis, we will pick the banks.
Clearly, we are picking them in order to bet against them, although betting against the index as a whole also works. And believe me, it is much more profitable and easier to make money on the stock market in a recession than in a bull market, because in a bull market some shares fall, others rise a lot and others only a little. On the first track of a recession’s album, everything goes down the drain alike.
The only thing you need to have ready is the strategy and the product you will use to make money from the recession. We have already covered the vehicles used to make money when the stock market falls. We can sell shares short (bearish positions, short sales…) or use financial derivatives such as futures and options.
We can also use CFDs, warrants and so on: depending on the time frame, there are different products to choose from. It is simply a matter of learning how to use them before the time comes.
Obviously, this does nothing to improve our country’s economy, but at least we save our own skin from the recession.
These words may sound very harsh, but if you know what to do when a recession comes, the poorer the population gets, the more money you can make.
What you cannot do in a crisis is sit back, using up your resources and your job, while you wait for governments to take the decisions that will get us out of the situation. If you sit still, you have already seen what happens.
What I mean is something very simple: if tomorrow France, Germany, Spain, Japan… goes into a deep recession, you can make a lot of money. It is not at all difficult, and it is within reach of anyone with even a minimal interest in finance and investing.
I will say it again: we live in a country where everyone is an expert on football and politics, but neither football nor politics earns you anything, whereas a minimum of financial education and knowledge of finance can save you from a great deal of trouble.
As the saying goes: “In times of crisis, some people cry while others sell handkerchiefs for the tears.”
Further reading
- The 10 most stupid things to spend money on
- 4 things I learned from being broke
- 7 mistakes we make with our personal finances
Featured image: "Closing down" sale, Belfast by Albert Bridge, CC BY-SA 2.0, via Wikimedia Commons.
