Is there a recession coming?
Of course. Good times are always followed by hard times. The more important question is “When will the next recession come?”
That, my friend, is a matter of prediction. Human beings, even experts, are very bad at prediction. You don’t have to take my word for this. Phil Tetlock is a professor at the University of Pennsylvania and a principal investigator at the Good Judgement Project. He’s studied close to 100,000 predictions. He says that even experts are not very good at prediction.
I felt better when I discovered that. I routinely review my guesses after 5 to 10 years. Regardless of how many hours of careful analysis I put in, the file review routinely shows that I did a poor job of forecasting the future. At least I’m not alone.
Neither of us will do a good job of predicting the next recession. The best we can do is consider what’s happened in the past. In the last 30 years, San Diego has had about 4 ½ years of recession and about 25.5 years of expansion. There’s no guarantee that each of the future years will be seven times as likely to be an expansion as a recession. Yet perhaps an assumption like that might be sensible background setting.
If we can’t predict when the recession will come, we can still decide what we’ll do when it does. Here’s an example of what not to do.
In the Great Recession, my wife and I sat on the sidelines with several years cash in hand, and we declined to buy investment real estate even at substantially reduced prices. Friend, I’m supposed to be an expert. Many wealthy people trust me to give them sage advice.
Candidly I missed the best buying opportunity in the last decade because I didn’t have the courage to buy the investment real estate that was most severely discounted. Several of my clients and associates, with less training, less experience, and lower ability to absorb risk, more than tripled their equity while I considered options
I won’t make that mistake again. Now that you know about it, I hope you won’t make it either.
The truth is that to do well when recession comes you need both a plan and the courage to execute it. Great buys happen when there a few buyers and many opportunities. Great values disappear when many buyers return to the market.
The Sage of Omaha, Warren Buffet,t put it well in an interview with Charlie Rose. “You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.”
Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”