Investor Stories from the Last Recession & Lessons We Can Apply Today

In a time of social distancing (amid the COVID-19 pandemic) sharing stories in real life can be challenging. Fortunately, there are platforms like BiggerPockets where investors can connect and support each other. Whether you’re concerned for your own financial well-being or that of your family members, you are not alone. At some point, another investor has been through the same challenges you’re currently facing.

Maybe you’re wondering how you can protect your financial future by aligning your investments and accounts with your specific investing style/goals. Better yet, how can this prepare you or your family to succeed even when the unexpected happens (i.e. a recession, illness, or even death)?

Let’s hear each other’s stories and get our questions answered through community. Below are a few investor stories to get us started, and each comes with a lesson that can be applied in any market.

Investor Stories

Andy

Andy was a young man who wanted easy money. He took a few online classes and was following a guru on social media. Andy took all his money (approximately $10k) and started to trade in options and currencies / Forex. He turned the $10k into $40k within weeks and was talking about working smart and not hard. He quit his job, moved out of his parents’ house, put money down on a car, dropped out of college, and started living the good life.

He ventured out into “day trading” and life was good for about five months until the market turned. He lost all his money, had no job, the car was repossessed, and he left his apartment in the middle of the night under the threat of eviction. In addition to the financial ruin, his credit being decimated, and the humiliation suffered, Andrew thought he had used up his good will with friends and family. He moved and started over again.

The financial damage is one thing and the psychological is another. That said, Andy is young and has time to overcome difficulties as he studies and learns. His goals, knowledge, and investing strategies need to be aligned for him to succeed.

Chris

Chis is a graduate of Princeton in finance. He understands the economy, the financial markets, and even the dreaded derivatives. Upon graduating, he takes a job in Tokyo and studies more under the senior management of Lehman Brothers. He decides to start practicing what he preaches. He uses his personal expertise and the expertise of his network and aligns his investments based on his knowledge, culture, and goals. Chris meets a young lady, marries, and starts a family. He loses his job as Lehman Brothers disintegrates in the 2008/2009 recession.

Chris was not idle long. Using his skills, he was back working in the financial field shortly after, doing what he loved and was good at. Chris and his family barely had a hiccup in the turmoil of the devastating economy, primarily because his goals and planning were aligned. This provided him the capability to weather the storm, which was obviously made worse when he lost not only his job but also his company.

Today the family is doing great. He’s still working in Japan, and the family vacations in the Hamptons.

So, what did these to investors do differently? What can we learn from their stories?

4 Strategies to Recession-Proof Your Investments

1. Determine Your Investing Style.

Creating an investment portfolio that aligns with your skills, goals, style, etc. is the best way to set yourself up for success. If you’re starting from scratch, take a blank white sheet of paper and list out all the investment options available (stocks and bonds, commercial RE, apartments, mutual funds, derivatives, precious metals, private businesses, notes, tax liens, farm equipment, and many more).

Take the time to fully educate yourself and learn from others (as Chris did in his story). Then compare these investments to your risk tolerance, age, investing goals, preferred time commitment, etc.

You’re investing style isn’t fixed. It will likely evolve as you grow and your life changes. For example, when I was younger, I was more aggressive, because I had the energy and time to start over if I needed to. At my age now, I’m the opposite.

Also consider the market for the investment opportunity. For example, rental properties have a broad market. If you’re investing in a pet supply company, the market is pet owners, and so on.

Maybe you want to invest in multiple asset classes or locations to build in more diversification. As we saw from Andy’s story, he put all his money in one investment type instead of diversifying with other investments as well.

2. Build Your Knowledge Base & Network.

Risk isn’t necessarily inherent to the investment. I believe that an investment becomes risky when you don’t fully understand it or have exit strategies in mind should the market change. When you invest in what you have knowledge in and what you’re good at (as we saw Chris do), even when things take a turn for the worse, you can utilize your skills to rebuild.

It can pay to have the right people on your team. For example, while Andy felt that he had exhausted his network already, Chris was able to continue learning from his network and changing course as necessary.

3. Have Reserves Ready.

Having reserves accessible is a good idea at all times, but even more so during uncertain times. Cash is King in changing markets. In the 2008/9 recession, you were able to buy houses in Florida and Vegas at a 50-75% discount. It was a great time to grow your real estate portfolio. In addition, your reserves will help you weather vacancies because tenants become unemployed. Another strategy has been to develop property when subcontractors are slow and prices are better. Many entrepreneurs are running small businesses and at some time will have a medical problem that will lay them up for a month or more, at which time reserves will play a major role in reducing anxiety. Reserves can come by savings accounts, credit cards, lines of credit, insurance, or even retirement accounts in emergencies.

4. Do Enough Due Diligence.

Based on where the market is, you may structure your deal differently. Are you prepared to do that? For example, I’ve seen private lenders do joint ventures or share in the profit of a flip house with a lower interest rate at the bottom of the market. That same lender will only take a guaranteed interest rate when they believe the market is at the top. The upside risk and reward should always be assessed as part of your due diligence.

Although I don’t do much with the stock market, doing your due diligence can lead you to areas or sectors that were hit hard with a quick recovery or others seeing little change but may also have an upside based on circumstances.

Understanding the market conditions is paramount before and periodically. Most airbnbs have cancelled over the COVID-19 virus. However, some clever owners advertised their properties to quarantine returning overseas students and family members as necessary to protect the elderly.

The above is not a full list. With the current situation, each investor will utilize their own strategies or adjust them as they see fit.

How did my portfolio fare in the last recession, and what adjustments am I making now?

My Story & Current Strategies

Personally, before the 2008/2009 crash, one of my goals was to gain more free time, so I was outsourcing some of the due diligence on my commercial real estate investments. These properties were in different locations, so I was diversified in that sense, but when the market turned, several of the companies that were my tenants went out of business and obviously couldn’t pay the rent.

Between not doing the due diligence myself and not being ready to take over the buildings, I completely lost some of those investments. I couldn’t continue with them because the bank had curtailed my borrowing ability. They took away my equity lines of credit (approximately $3.5 Million) with absolutely no notice or notification, which I was planning to use to weather the storm.

Now I am sure to do all necessary due diligence with the idea that things could go south. Since then, I have reestablished lines of credit. I took $500k out of one and have it deposited at another bank so that it’s readily accessible. I can either use it to manage properties as needed or buy property if the right deals present themselves. Plus, there may be opportunities to build or repurpose properties as health facilities, quarantine housing, etc. that benefits the broader community.

None of us know how long the coronavirus pandemic will last or how it will impact not only everyone’s health but the market as well. Of course, we all want to still thrive at the end of it, rather than just survive.

I encourage everyone to make sure they have adequate reserves set aside if they need it, and let’s continue to connect with each other and support each other however possible.

Have stories or questions to share? Comment below!