I feel like I read this headline in the past week three time a day: “Are We Heading Towards A Recession?” or “Is the Recession Already Here?”. And while I am thinking that we might potentially be already in one I want to focus on something else in this article. I want to focus on the potential mistakes that people could do in a financial situation like this. Imagine this: the economy is declining,, many companies are defaulting and laying off a lot of people, jobs are getting scarce and a lot of goods are becoming more expensive. This situation is truly not the best one but many people who are investing into stuff are still doing a lot of mistakes and that is what I want to talk about in this article.
Know When To Quit
First very common mistake is not to know when to quit. It is like in a casino: When you already lost 100 USD and are on a bad luck streak, you think that your luck has to change soon but this unfortunately never the case. You are doubling down and lose even more money. This is a very common mistake with gambling but also in the investing and business world. For example: When your business idea is not finding the attraction that you think it deserves, it might be that the idea was not the best to begin with. Therefore, to cut your losses it is mostly beneficial not to double down on this idea but to stop it as soon as you can to avoid losing even more money.
Scams
I feel like the next mistakes is happening during bull and bear markets, during good and bad times. The difference is, while during good times you can easily bounce back from a scam, in bad times being fooled by a scam hurts more than double. Furthermore, the probability of falling for a scam in hard times might be even higher in some cases because these opportunities seem too good to be true. Spoiler-Alert: They most likely are! I think that during hard times, people should never lose hope and still try to make investments as the bottom is most of the time near and it could only go up from there but it is highly recommended not to throw your money out of a window and always do your own research!
Investing Without Understanding
This brings me to my next important mistake that many people are doing: Investing without understanding. A lot of people are falling for scams because they are not doing their own research and just trusting the hype but there is also another side to this. Most of the time people are selling off their real assets as well without understanding what is happening. This way they are hoping to safe as much money as they have left. But let’s think about it for a second. If a very profitable company did not change anything about their strategy, their numbers are still very profitable and we are just in the situation that the whole market is going down, why would you sell your shares of such a company. In my opinion it would be smarter to understand what is happening and reassess your holdings. Which assets did not fundamentally changed and which did?
Ideas
Next up are ideas. During hard times many smart people are coming up with very cool ideas for a product or an application. Most of the time these ideas are not born in just one head but all around the world and only people who believe in this idea and are trying to make this idea reality will profit from it! Therefore, if you find yourself in the situation of having a very cool idea: Do not hesitate and try to make it reality, because if you do not somebody else will.
Not Focusing On Cash Flow
Last but not least we have a very common problem: Not focusing on the cashflow. In economic situations like a recession many technology stocks will not grow. These grow stocks are highly volatile and investors are not really risk friendly in such situations. This is why many people are sticking with value stocks that are showing stable numbers and generating monthly cash flow. My take on this is that money is very hard to earn during a recession. Many people are trying to buy only what they absolutely need and try to stay away from unnecessary purchases like headphones or the newest iPhone. This is why, these companies will have a hard time. On the other side, companies that are always needed, like Walmart or CocaCola, will shine during these times because everybody will need food or beverages. I think it is important to think the same about your investments. Priority number one should always be to generate cashflow.
Published by ga38jem on
LeoFinance
On 22nd April 2022