How To Make Millions In A Recession

What's up guys, it's Graham here. So, the other day I posted on Instagram about why I was not planning to make this video. In that post, I explained that I had made videos like this in the past; my thoughts and outlook on the markets have not changed, and because of that, I felt like this video would just be too repetitive.

However, despite me explaining that, it was a bit alarming how many people wanted me to cover this information anyway. Plus, given now that we're officially in stock market correction territory, and these are some of the biggest losses that investors have seen since 2008, I came to the realization that yes, this is probably something I should be talking about.

Sometimes, a bit of repetitiveness is good. There are benefits to constantly being reminded of what to do, like smashing the like button for the YouTube algorithm. Oftentimes, without being constantly hammered with information, it becomes somewhat easy to forget. So, even though these philosophies are not going to be changing month by month, and the same principles we talked about today will still be applicable ten years from now, it's vital that we continue practicing the same mindset.

We understand what's going on with the markets, and from that, we could all be better investors. Plus, right now, I feel a little bit like the investing therapist who's just trying to calm everyone down and not make any rash decisions. Really, instead, I want you guys to focus on the bigger picture and see all of the opportunity around us.

So, with that said, here are my thoughts about what's going on, my investing plan for the rest of the year, and what you could do to make sure you come out ahead of this profitable. Now, let's start here: what on earth has been happening lately, and what has sparked this massive sell-off?

Well, I'm going to try to sum things up for you, and bear with me if some of this seems a little vague or I refrain from saying certain words. I have to say this in such a way that's okay with the YouTube algorithm and does not get me demonetized, so this is my best shot at that, and here we go. Basically, there's a very alarming illness overseas that has happened to spread very quickly, and that caused the second-largest economy to essentially shut down and halt production.

Now, from a business perspective, when so much of our own manufacturing relies on this economy, our own businesses suffer alongside with it. As of now, we're essentially missing a link in the global supply chain. As travel demand dwindles, production slows down dramatically. People are not spending money, and from that, rather large companies have announced that they won't be meeting their expected revenue, and they expect their numbers to decline.

That affects the entire stock market. As investors brace for lower profits, they move to maybe safer investments, or they hold out their money in cash. Now, what ends up making this a bit worse, in a sense, is all the uncertainty surrounding what might happen. Investors really don't know how bad things will be; they don't know how far this illness might spread, and because of that, that uncertainty is going to be priced into the markets.

When something like this happens, and it affects our markets on such a big scale, it's known as what's called a Black Swan event. The term came about from the early belief that all swans were white, so the term Black Swan just meant something had an impossibility of happening because they thought such a thing did not exist. It's almost like us saying, "when pigs can fly."

Except later, in 1697, a Dutch explorer found out that yes, black swans do indeed exist in Australia, and from that discovery, the Black Swan term coined a different meaning. It's an occurrence or an event that no one could have seen coming or have been able to predict, and that is very much like what we're seeing today.

By the way, just a quick side tangent here: imagine if we discovered somewhere flying pigs! There are so many things that I said I would do when pigs can fly, so if that ever happens, we'll save that for another video. Anyway, going back to Black Swan events, that brings us to today.

Really, until now, there's been very little reason for the stock market to go down. If we looked at the stock market objectively, we could see that interest rates are low, inflation is low, unemployment is low, and, in the sense, things are good. Sure, there have been people warning about inverted yield curves; we've been in one of the longest-running bull markets in history. There's been some irrational exuberance in the market that made absolutely no sense whatsoever, but really, there has not been any sort of singular event that would cause a sudden drop in prices until today.

However, and this is a bit of a perfect storm, it came out of nowhere and affects businesses globally. It's centralized right now in the second-largest economy in the entire world. Most importantly, people are afraid; something like this could have never been predicted a year ago.

Here's the thing: when it comes to the stock market, a lot of the analysis that we do is somewhat predictable and modeled. After all, if we could somewhat size up the severity of a situation and then predict the likelihood of something happening, then at that point, it's already going to be priced into the markets to reflect the chances of that event happening.

If there's a lack of demand for a certain item, then usually prices will drop to the point where it becomes too well-priced for people not to buy, which then causes people to buy, and that will lift prices up to the equilibrium where they should be. Well, the entire stock market is pretty much the exact same thing. It's a constant ebb and flow of investor expectation, supply-demand, optimism, and pessimism—that's it.

But here we are now, with a world event that no one could have expected, that has a far-reaching impact and gets a lot of people fearful. Now, at this point, it's really important for me to clarify that the point of this video is not to make you afraid of this, but instead, I want to build the foundation from what we have seen and explain even just a little bit about what is going on with the markets.

Because the more you understand about what's happening and what's happened in the past, the more confident you're going to be as an investor. Because honestly, as unique and unexpected as Black Swan events are, they are not completely uncommon either. Take a look at the chart here, which goes over the last 80 years and highlights only some of the Black Swan events throughout history.

As you could see, it seems as though nearly every decade, there is something that happens which causes a stock market sell-off. But over time, eventually it recovers, and we continue on as normal. So when it comes to this here, the fundamentals you'll need to understand and remember any time it comes to investing, and also how to make sure you'll be in the best position possible to come out of all of this.

Okay, here's the first thing we need to realize: even right now, at the time I'm making this video, with the S&P 500 down 13% in the last week, prices are only back to where they last were in August of 2019. Or really, in other words, seven months ago, and objectively, the S&P 500 is still up over 40% in the last five years, not including dividends, which would put your overall return at even higher than 40%.

So if we just take a step back for a moment and realize that 2019 saw a nearly 30 percent increase in price, that even if the stock market were to drop 20 percent within a week, we're still 10% ahead of where we were last year. Just think of it like this: imagine if the stock market were like this really crazy, eccentric person who told you something like, "Hey, their investor! Thanks so much for giving me your money and smashing the like button for the YouTube algorithm! Because you trusted me with your money, I'm going to be giving you a 7 percent annualized return over the next 50 years."

Let's see, here's the thing: just giving you a straight 7 percent every single year is kind of boring, so I'm gonna spice things up and just make this really interesting. I'm going to be giving you some years where we're gonna make 20-30 percent profit, and other years, I'm going to take away 20 or 30 percent in profit. There are going to be some years where I'm not gonna give you any money whatsoever, and other years, right, I'm actually just gonna take money from you.

But on the bright side, see, if you just hold your investment long-term and you don't do anything over the long-term, I'm just gonna end up giving you an average of about 7% a year. That is basically my weird impression of what the stock market is like.

If you look at this graph here that goes over the last 100 years of the stock market, you'll see that green signals years of profit, and the red signals years of losses. Overall, there's a lot more green than red, but there are red years of 17 percent losses, 23 percent losses, 30 percent losses, and even 40 percent losses. But guess what? After every single one of them, there are years of profits; typically, it's even multiple years of profits.

And if you happen to panic and sell and then wait for the bottom, well, you may have just missed out on the next run-up. This is also a funny little picture I found on Reddit; it just sums up the mass investor's psychology so perfectly. It's way too true.

This is it: it starts you off by buying into the markets and seeing some profits, and being really happy that you didn't wait to invest. But then the markets drop, and you're excited about the markets dropping because you get to buy even more. And then all of a sudden, it keeps dropping, and you start to panic and things get even worse. Things, wait a second, get even worse, and then you decide you've had enough of that, and you sell at a massive loss.

Then things start dropping even more, so you're glad you sold off. That actually worked out pretty well in your favor, but then things start turning around, and prices start going up. You hold out, expecting things to drop even more, but they don't. So eventually, it keeps going up, and you buy in around the same price that it originally was, except now you ended up losing a lot of money.

I really hate to say it, but that is so true of so many investors. I saw this happen to way too many people in December of 2018, where they sold off all of their positions. They've told me they lost money, and then they ended up missing out on one of the stock market's most profitable years in quite some time. Only getting at is this: the tried-and-true method throughout the entire history of the stock market that has always proved profitable, no matter what, is just to buy and hold.

Seriously, the stock market is the only thing where if prices go down, people go into a state of panic. From my perspective, unless you're planning to cash out and retire in the next few years, the price of the stock market going up or down right now is completely irrelevant. Like, you wouldn't go and panic if the price of the iPhone right now dropped to $200, right? Even if right now you own an iPhone, chances are if you saw it selling for $200, you would just think, "Ooh! Now I’ll just go and get another iPhone because it's such a good deal."

Well, you got to think to yourself, in a weird way, how is that mindset any different than stocks? You should just view this as it's a Black Friday sale. I'm going to continue buying normal as I would anyway, except right now I get a slightly better deal. If prices continue to drop even further, well, that just means I'm getting an even better deal.

Like, any time I go to the grocery store and I see a sale in store brand eggs, I don't think to myself, "Oh crap! I shouldn’t have bought my eggs last week! I lost a whole bunch of money then because I overpaid, and I could have just bought them now." No! You just never think that way; instead, you think, "Oh wow! Good! Now they're on sale, and I could stock up on more eggs for later. That's gonna save me some money in the long run.”

The way I see it, investments are the exact same way. That's why I've never really understood why people are so fearful about the stock market dropping in price or them thinking like it's this apocalyptic scenario that we can never recover from. Because history has really shown us that's not the case, time and time again.

In fact, there's always going to be a reason not to invest your money or to think this time is different, and history has shown us that is very true. But just look at this: there's always something that could impact stock market returns, but whether or not we see a negative yield that year is nearly unpredictable. This continues throughout the last 100 years. Sure, the context now might be a little bit different, but overall, this is very much in line with history.

Like, you'll see plenty of times where the market could have gone down, but before a 17 percent market crash, the market goes up about 50%. So anyone sitting on the sidelines just waiting for a market drop would have to just wait that one out and then buy back in at an even higher price.

And if you want my recommendation on what to do through all of this, and also what I'm going to be personally doing, then here's my recommendation: first, only invest long-term. This just means don't invest money that you know you're going to be needing in the short term because if you're investing the money that you'll need to pay your rent next month, you're not going to have enough time for the markets to recover if, in the event, something like this happens.

I only recommend investing money that you know you're not going to need for the next five years, and preferably at least the next ten years. The only people right now that I think should be concerned about what's going on are the people who are one to two years away from retirement and did not rebalance their portfolio away from equities. If it's not you, then I would sleep easy at night because if you look at a 20-year holding period on the S&P 500, it has rarely produced a negative result.

Second, you should always invest consistently. Don't do anything different if the market goes up or down in price, and just invest as usual. Also, don't go and dump everything you have right now into the markets unless that was your plan from the very beginning. Instead, just continue buying at normal intervals as you hopefully were doing.

It's shown that dollar cost averaging, or the strategy of buying into the market at regular intervals over a long period of time, has proven to be the most successful and most profitable. So all I would do in this one is stay in the market and continue investing as normal.

Third, it's also really important that you have an emergency fund. Ideally, this is the money that you have saved up, equivalent to three to six months' worth of your expenses. This is gonna be the money that you could fall back on in the event you lose your job or something happens to your income, or in the event that we find out, wait a second, pigs can actually fly.

Just trust me on this one: having an emergency fund like this saved up takes all the worry away of how your investments are doing. Just having something like this to fall back on is entirely worth the peace of mind.

Fourth, I always recommend you diversify your investments. For me, I don't just keep all of my investments in stocks; I also invest a lot in real estate and keep a lot of cash on the side. And if you cannot handle a 15% drop in prices, then maybe that's a sign you're invested a little bit too aggressively.

Also, keep enough cash or something stable on the sidelines to make you feel more comfortable. Because, again, the most important thing you could possibly do is just buy and hold.

Lastly, number five: reduce your spending. Seriously, I know this one is not investment-related, but it is so important. If you're able to cut back on spending right now, you could apply more money to paying down high-interest rate debt and have more money left over to buy stocks at a time when they're down in value.

Looking back for me, in hindsight, I wish I was able to work twice as hard in 2008, 2009, and 2010 so that way I would have more money left over to buy things at a time when they were at all-time lows. So if you're able to cut back on your spending now, you'll have more money left over at a time when you can invest, and that money could be worth significantly more at a point in the future.

And that is also my exact investing plan moving forward. I don't plan to change a single thing from what I've already been doing, and the price of the stock market right now does not change anything.

Finally, let me just say this: from what I've seen in nearly every single investment, usually, what ends up happening is that prices end up getting too high because people are just enamored at the prospect of making money. That causes prices to swing too far in one direction because all of a sudden excitement is driving the market more than fundamentals.

Then, at the point when something happens, the tables turn, and fear causes it to swing too far in the other direction, where people are afraid, and fear is driving the market more than logic. Don't let that be you because no one can predict how long it's gonna be here for or how far it's gonna swing in that direction, or how much fear will take over.

So really, your best chance of coming out of all of this ahead is just to stay the course. Not to mention, price drops like this should really just be seen as an opportunity. Like, in a weird way, the Great Recession of 2009 became a once-in-a-lifetime buying opportunity for so many people to get in at a price where they otherwise wouldn't have been able to afford.

Like, I was able to buy full-on houses here in California for under $70,000. Stocks were also trading at a fraction of the price that they were a few years earlier, and even though watching prices go up is cool and fun, riches are really made in recessions.

We should not be trying to time these recessions by any means, but if we do see a drop in price, that should be seen as a very good opportunity. We should not panic; we should not be concerned. We should just see this as, "I'm able to buy this now at a discounted price and hold on to it long-term and just carry on as normal."

Because after all, if prices go down and you're able to buy even more, then that means you're saving money, and everyone loves saving money.

So those are my thoughts about the whole situation and what my plan will be as well. I'm not doing anything differently; I'm not scared, I'm not concerned, and everything just carries on as usual.

And I realize some of this information might seem a bit repetitive, but I don't think there's any harm in reminding you that everything is going to be okay. And to also smash the like button for the YouTube algorithm.

So with that said, you guys, thank you so much for watching! I really appreciate it. As always, make sure to destroy the subscribe button and the like button. Feel free to add me on Instagram; I post there pretty much daily. So if you want to be a part of it, feel free to add me there as well. My second channel, The Graham Stefan Show, I post there every single day I’m not posting here.

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Thank you so much for watching, and until next time!