Surviving Ex-spurts

A recent message explained the most dangerous economic times. Learn here the second worst.

Dear International Friend,

Wealth comes in spurts and getting a large influx of cash or profit can create the most dangerous economic time. There is more on this at

The second most dangerous time however is during a serious recession or depression such as we have entered now. Tax attorney and eClub advisor Leslie Share summed this fact in his recent message which said:

"Gary--your note "Was the Attack on America an Assault on Our Wealth?" was most interesting and unfortunately right on the money (to use a bad pun). The difference between the crisis now and the 1998 crisis is that many jobs have now been directly eliminated through scaring people away from business or leisure travel, along with the insurance and lawsuit nightmare to come. South Florida as you can imagine is now being hit very hard. Your former hometown of Naples is also suffering from a general lack of tourists, along with a dearth of its current bread and butter (German investors), ironically due to the strength of the dollar against the mark. At this rate, in a year or two, real estate values may be very much lower there.

If you don't mind the analogy, when a person thinks of Little Horse Creek, one can't help in these tense times but recall Ayn Rand's Atlas Shrugged, where the real thinkers, creators and doers left formal society and moved out into the mountains and became self-sufficient while the lights of New York City went out and the business world collapsed. Sound familiar? "

Leslie makes a serious point and we would all do well to recognize the serious nature of the economy now. Our last message ***link to Invest or not to invest***showed a positive market view offered by Jyske Bank.

Another August message showed how top investment manager Jeremy Grantham's near-term forecast was that the market will rally on an economic recovery. He felt that anytime now, there will be a fairly decent broad pickup, led by the consumer because of the tax cuts and because of the many interest-rate cuts. He feels it probably will be a decent recovery and in this kind of knee-jerk stock market, at the first sign of a healthy economy the stock market will kick up 10% at minimum, 20% at best, but that this rally would be short lived and a time to shift to value shares. We can wonder how he feels now, but the key here is to understand that the market and economy are not falling because of the terrorist attacks. The markets are just using the attack as an excuse to go where they want and should be.

So how does one survive such dangerous times? First recognize that tight economies are best for making money. For example Marc Andreessen co founder of Netscape says in the July issue of Worth Magazine he has started Loudcloud an Internet infrastructure company (who raised $162 million in a March 2001 IPO) now because there is less competition, easier access to good labor. Both businesses and employees are more realistic in tough times.

Tough times can be good because they force us to do what we should already have been doing. Human nature being what it is, we get fat when the times turn easy and seem good. Here are a few tips we should always heed, but sometimes can survive ignoring when economies boom. If we ignore them now, it is at our peril.

#1: Look for every way you can to trim expenses.

#2: Do not be inflexible or proud. Not long ago a seminar delegate told me about a friend who had risen from a zero net worth to having an Internet portfolio worth $300 million. "Then," the delegate said, "he lost it all when the bubble burst. He went right back to where he started." That was not quite right. That investor did not go back to where he started. He most likely acquired bad habits when he thought he was worth $300 million! Unless he shed these habits when he went broke they will make it harder for him to succeed again! In good times, we may think we deserve a certain way of life or that some things are inalienable rights. Really our only economic right it to spend a little less (maybe 90%) than we earn.

#3: Always save. No matter how tough the times always try to save at least 10% of your income. Those who do this almost never run into economic trouble.

#4: Look harder for the silver lining. There are more in bad times than good. An old British saying is "where there is muck there is brass". Business is solving problems and difficult times create problems. Look for ways that you (or your investments) can help others squeeze through tight times.

#5: Be positive. One of the greatest risks in recession is a can't win attitude. If the economy falls drastically (say 30%), you still only have to be in the top 70% to get by. The entire history of modern humanity has been one of long term growth chopped by short term recessions. Current conditions are nothing new.

#6: Remain true to your economic plan. Use three phase investing as described in so many of the messages here Do not panic and stick by your investments (assuming they were made intelligently to begin). This will increase your odds of success and help you with step seven.

#7: Maintain perspective. Today's cover story in the Money section of USA Today is titled "American Workers Rethink Priorities". This article points out that many workers are taking time to rethink their grueling schedules or about pursuing work that might pay less but is more meaningful. We live in the richest, most incredible era that mankind has ever known. Our poorest have more than the richest of just centuries ago. Yet this can be hard to remember when caught in the day-to-day rush of the material rat race. Inspired investing is doing what we love and figuring out how to make money from it. We increase our odds of success and enjoy what we are doing more. When times are tough and the economy slows, this perspective can give us time to sit back for at least a few moments and ask, "What do I really want to do with the rest of my life?"

The answer is the most important asset you will ever receive.

Until next message, good global business and investing!


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