THE 5 HABITS TO MASTER FOR A RECESSION-PROOF MINDSET
It is no longer a secret that the entire world may enter a period of recession or economic difficulty. Personally, I think that we have already entered this moment. As we enter this economic storm, the question we must ask ourselves is: how can I prepare to ride this wave? My answer is simple: focus on your mindset. This is because our thoughts, our stressors, and our fears are triggered by our way of thinking.
We often refer to two groups of people: optimists and pessimists. In my opinion, there is also a third group - the pragmatists and realists. These individuals observe facts and events as they are, without stressing over potential losses or wins. These people analyze facts or events without too much emotion and they carefully consider if their strategy is adequate. If it is not, they make a calm and rational correction. They avoid becoming overwhelmed, panicky, or stressed about their circumstances.
How can someone reach this type of mindset? When I was in military academy learning to fly, one of my instructors shared these two powerful thoughts that I still use in my daily life:
You can make any mistake during a flight, but you can only make it once. When student pilots are training, they are reminded that flying a fighter jet is very expensive. When they go on to train to become a division lead, there will be 6 to 8 more planes playing the enemy or the wingmen. This means that the training session is then 6 to 8 times the cost. Thus, given the limited budget and timeframe students must perform to the highest level. This doesn’t mean that they need to perform perfectly, but it means that they must learn fast and make mistakes only once
Read books written by existing pilots. You won’t have enough lives to make all their mistakes; you only have one! This instructor wanted me to learn tactics by studying how existing pilots had defeated their enemies. Most of these pilots have since passed away. By reading their stories you can learn from their mistakes and understand which strategies worked best for them, rather than wasting the time making the mistakes yourself
In summary: only make a mistake once and learn from others who went through similar situations. These are two mottos that have guided me through living all these years. Now, I want you to look back and analyze the mistakes that you have made during past recessions or downturns in the economy. It could be a downturn that is specific to your industry. Learn from these mistakes and don’t repeat them. I want you to read articles, books on the economy, and/or financial books that present the facts objectively. Find people around you who work in financial or business roles, talk to them and listen to what they say pragmatically and critically. Separate the facts from their own bias. People who always have an answer will often use the answer that benefits them the most. Cut this noise out. If you can, ask a variety of people with different perspectives and find the common ground between the answers using your own critical mind. This will lead you to the most valuable findings and the best decisions for you.
Reflecting on past mistakes and gathering information are the first two steps. The next step is mastering 5 specific habits that will build a recession-proof mindset p.s. please, don’t blame yourself for anything, we learn from our mistakes, be kind and forgive yourself.
1. Think long term rather than short term
A common mistake is overestimating short goals/growths and underestimating long term goals/growth. People make this mistake not only when building wealth,but in their personal life and professional life. How many times have you heard stories of someone with a big ambition to start their own business? They have their goals set for the next 3 months, 6 months, and/or year. They plan to become a millionaire in two years. They start to work hard towards these goals… but at some point, they give up, feeling demoralized, and demotivated by the results. The big mistake is that they forget to look at the horizon and see what is feasible in 5 or 10 years. They put large unrealistic goals in the short term and smaller goals in the long term. If you know your mathematical terminology they focus too often on logarithmic growth (starting with vertical growth that flattens over time, short-term mindset) instead of exponential growth (starting flat and accelerating vertically over time). Linear growth is roughly in the middle (steady growth over a long period of time).
Have you ever heard of someone who wanted to lose weight by losing X amount every week aiming to reach their target weight within a few months? They may lose weight fast at the beginning. Then it becomes harder, then they lose hope, lose motivation, and stop exercising or following their diet. What would have been the outcome if they would have instead taken a year to reach their target weight and started with small incremental and sustainable goals? They will see results and reach their goals every week. Reaching them will help to stay motivated and keep their exercise/diet schedule going. These small changes and progressions will become a habit and lead to a new, healthier lifestyle overall.
Think about your wealth comprehensively. Don’t look only at one specific area. The key, in the long term, is to increase your wealth. Yes, some assets may go down, but others may go up. Look at the trend. Now, in 2022, we hit something very unusual where everything decreases except the US dollar and interest rate. Stock, existing bonds, raw materials, commodities, real estate, cryptocurrency… they all started to decrease. But if you look at the horizon, some of them will recover fast and your wealth will start to increase again. It requires patience and diligence to believe in this process. Look where you were 5, 10, or 20 years ago with your personal global wealth. It probably has increased (even if you have divorced and the assets were split - there was growth). Now, imagine in 10 years, which goals you want to achieve and how you want to allocate your assets meanwhile. Then reverse engineer how to get there. Start thinking “long term investment” and avoid thinking short term gain with quick “speculative investments”. Short term speculations don’t perform well over the long term!
2. Cultivate equanimity
What does this mean? According to Wikipedia, equanimity is a state of psychological stability and composure which is undisturbed by experience of or exposure to emotions, pain, or other phenomena that may cause others to lose their balance of mind. Oxford Dictionary describes equanimity as mental calmness, composure, and evenness of temper, especially in difficult situations.
I heard this term the first time I participated in a 10-day silent meditation retreat based on the Buddha teachings. Our minds too often get overexcited when our expectations are met and overreact when they are not. We are super happy, joyful, ecstatic when we win something or have a pleasurable experience. We want more of it and we start to crave that. When the opposite happens, we become upset, angry, sad and we develop aversions. It is how the mind works and it is why we became prisoners of our misery.
Developing an equanimous mind is difficult. It requires us to be very aware and mindful of our thoughts, feelings, beliefs, and behaviors. One of the best ways to bring more awareness and mindfulness to our lives is through meditative practices. The goal is to observe the fact like it is, objectively and pragmatically knowing that whatever is happening will pass away. You are having a fantastic birthday party and really feel loved, appreciated, and valued. You want that feeling to stay forever (craving). It won’t! That does not mean that you cannot enjoy happy moments or events. Enjoy them fully but know that they will not last, they are impermanent. The same is valid when life sends you a curve ball. Challenges, difficulties, and obstacles will be in your path. Know that eventually, they will pass away. Everything in the Universe rises and passes away. This is the law of nature.
When you are analyzing your balance sheets and income statements you may spot an unusual increase or decrease, this will not last forever. Look at this as a sine curve (sorry we are back to mathematics) with a general uptrend (because we focus on long term goals and growth). If you had a very fast gain or exploded your sales forecast, make sure to enjoy it but know that it may not become the norm. The same if you hit a deep, know that it is not going to be a black hole and you will lose everything. It will pass over the long term.
The earlier you can establish an equanimous mind, the better you will manage market fluctuations. You will feel more centered, calmer, and more at peace with what is. Everything rises and passes away, this is the law of nature and the law of economics too!
3. Stick to your numbers
I am a spreadsheet type of guy. People laugh sometimes about my organizational habits. I do it with precision like a Swiss watch maker 😊. I am good with numbers, and I like it. What I have learned throughout my years of building companies and investing is to have clear strategies and always have a plan for getting in and getting out of any situation. The key is having clarity about when to quit something or stick with it. This works for investments, new business opportunities, personal expense management, and even relationships (this one doesn’t require a spreadsheet, but you should know when to quit or stick with it).
Crunching numbers and having them on paper (and not only in your head) will help you to have overall clarity. When you have your numbers, stick to them. When you reach them, you can either quit or stick with it and double down. I will share with you my four golden rules that will always be beneficial for your long-term goals and growth (investment, business, or life in general).
Produce more than you consume. Think holistically about the big picture. It is not only about how you consume goods but how you interact with resources. If you have a garden and you produce more tomatoes than you consume, your garden will grow. Same with your money. If you have $10,000 in revenue and you spend a maximum of $9,999, you will not go in debt, right? Now think about your life in general, are you someone who gives more than they take? Are you investing in your community? Are you building a legacy? Are you serving others? Ask those questions and see if you produce more than you consume
Have a positive net interest. What does this mean? Let me give you an example. If you add together all the interest you pay for your debt and credit card (except mortgage* for your own residence), are they higher or lower than the interest and revenue you have gained from your investment? If the interest of your credit is less than the interest that your investments produce, you have a positive net interest. If not, you will have a negative net interest which will increase exponentially over the long term, leading you to tougher situations if you don’t act. Look at your numbers and make sure you have a positive net interest.
*You don’t include the interest of your mortgage because either you pay a rent or pay a mortgage. You need to live somewhere. For this calculation, the mortgage interest will be considered like an expense
If you combine rule number 1 and 2, you will always grow your wealth, whatever happens in the outside world. Simple but powerful rules.Protect your gains, cut your losses. This rule is useful when you need to find the right exit strategy for a business or an investment. For example, you buy a share of a company at $100. You decide to protect your wealth with a trailing stop of 25%. Then, the shares go down right after you bought them. You hit $75. You sell it, without emotion. That is cutting your losses. If the same share goes at $200 and then starts to go down, when you hit 25% of the highest price, you sell. In our case, it is $150. You protect your gains. This rule will help you to decide if you need to quit or stick to it. Now, look at the magic of a trailing stop. Let’s say you have invested into 25 companies with an equal amount, at $1,000 each. The total of your investment is $25,000. One share goes down right away. You hit $750, so you sell it. You have now a total wealth of $24,750. You lost only 1% of your investments. Now you can see how powerful it is to stick to your numbers if you want to make sound investments and smart business decisions. Make your spreadsheets!
First, don’t spend it. If you want to grow your wealth, the first thing you need to do is not spend the money. Instead of buying the new pair of shoes or going to the fancy restaurant, save that money and invest in your business, real estate, or portfolio. It is very dangerous to borrow money with high interest (credit cards, equity lines) and invest it hoping to create a positive net interest. This is the best way to burn your fingers. It may work in the short term but in the long term… ask people who borrowed money to buy crypto… it didn’t go well! First of all, save the money, don’t spend it. That is how I started when I was 14 years old. Now I am grateful that I did it. It gives me more freedom to do what I want. Be disciplined and diligent with your money
4. New perspectives: future opportunities vs past losses
Everything rises and passes away. This is the law of nature and economics. Yes, it hurts when you lose hard-earned money. But what happened in the past cannot change. It is done. The earlier you can shift your mind from the past to the present and future, the better. Find the present opportunities that can have a good growth potential over the long term. If you have a business that could be hit hard by a recession, how might you pivot? What new opportunities can you see popping up?
The best time to plant the seed is when you are at the bottom (or close to the bottom). When things will turn around, you will be ready to catch the momentum. You will be ahead of the curve. Think about your goals and your growth 5 to 10 years down the road and look at what opportunities are available in front of you now. They are there, but you must work hard to find them.
Perspective in life is everything. When I look back to my life and remember the tragedies that happened in Switzerland, I could either have feelings of loss, injustice, and unfairness, or I can flip the coin and look at what it gave me, freedom, new opportunities, abundance, and love. It is the same story but with two different perspectives. Do the same, flip the coin and look towards the future, see the losses as springboards for better and greater returns.
5. Recovery mode
Now, what to do if you were hit hard and found yourself spinning out of control like an aircraft that just stalled? Doing nothing is probably not the best idea. You will crash! You need to go into spin recovery mode. How does this translate for your actions and your mind?
In aviation, we have a boldface or immediate action checklist (contingency plan). These are procedures that we learn by heart in case something bad happens. We train them in simulators. It could be something like falling into a spin, having a fire on one engine, or losing hydraulics (flight control). We do not have time to read or think about what to do next, we must act and act fast.
Think about what could be the worst-case scenarios for you. Maybe it is losing the business or part of it, not being able to pay the bills or the mortgage. What could it be? It is now the perfect time to think about it. “What would you do if…” create an immediate action plan. Where can you find resources to counter the loss? Where can you save money? How can you consolidate your debt with a favorable interest? What assets can you sell or liquidate first? If you must sell your home, what is the plan B? I don’t want to freak you out but having a plan could save your life and your long-term goals and growth. People who never think about the “what if…” and are then hit hard make emotional decisions based on feelings and panic. Often, the outcome is not so good. It is much like being prepared in case of fire. I personally live in an area that is subject to this threat. So, what do I do if I must evacuate? What is my immediate action checklist? I am prepared for this, so why aren’t you?
I give you another example using scuba diving. I dive very deep with multiple tanks (up to 5), multiple gases (air, helium, 100% oxygen...). When I dive, I always have a contingency plan in case one of my tanks becomes unavailable. If my 100% oxygen tank does not work (let’s say my valve broke) and I cannot use it for my decompression steps, I make sure I take with me enough reserve gas in the other tanks to compensate for this possibility. I plan multiple scenarios and make sure that whatever gas is not available, I am able to come back to the surface safely.
So, what is your contingency plan? If you cannot pay the mortgage, what can you sell or what extra revenue can you generate to get the money you need to keep a roof over your head? Maybe the plan is to sell the house and rent for a while. Whatever you decide, make sure you write it down. Make it clear in your mind. Know and stick to your numbers! Revise your plan from time to time, especially when you have a big shift in your revenue or expenses, positive or negative.
Final words
Reading about these 5 habits to master for a recession-proof mindset can be depressing. You may feel overwhelmed or hopeless. You may fear for the future. That is not what I want. What I want for you is to feel confident that whatever might happen, you are ready. I want you to have the competence to make the right move. I don’t give any financial advice. I just adjust your perspective on your wealth, the economy, and your life in general. A recession-proof mindset includes having a plan for how to stay healthy physically, mentally, emotionally, and spiritually. How is your net interest in your emotional and mental life? Is it positive or negative? What about your physical health? Are you looking to become stronger and healthier in the long term or are you looking back to the past and blaming COVID-19 for the few pounds you gained? What perceptions do you have? Have an honest conversation with yourself. Then, plan and take appropriate and sustainable action. I can guarantee you that wherever you are, if you take control and take responsibility before moving forward with a solid plan, you will feel much better. Remember to think long term. Remember that everything in life rises and passes away. Master the 5 habits to build a recession-proof mindset:
Think long term, look at the steady upward trend
Cultivate equanimity, don’t be attached to the temporary fluctuations
Stick to your numbers, have a plan for when to quit versus sticking with it
Change your perspective, be future oriented, look for new opportunities
Recovery mode, have an immediate action plan or contingency plan for the “what if…”
Last words: don’t be shy. Ask for advice. We all know people who have more experience in certain areas of life or business. Reach out. They would be happy to help. One warning though: if someone approaches you in a way that will benefit them, walk away. Seek genuine people who really want the best for you and your family. If you feel stuck, overwhelmed, and need help, I am here for you. Reach out, don’t be shy. I will be here for you!
- Hubert
YourHPcoach
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