Preparing for the Recession Transcript
In terms of the day to day stuff, I’m a big fan of what Stephen Petith says about having three months’ worth of gold, silver and cash on hand for a day to day sort of expenses and that sor t of thing as well.
So I’ve actually been applying that to my own situation, just building it up slowly, a bit by bit, and that’s been fun too. So that’s just a really practical thing, I think, in terms of the day to day stuff.
If there is a collapse that comes, a lot of people get frightened from the stock market and just get scared, but what are you guys actually doing to prepare for the crash in terms of making income from it?
Because there’s a lot of quotes that share for a sessions create opportunity and make more millionaires. So what are you guys actually doing with the stock markets and trading to actually make the crash count?
It is true, I believe, that there was more millionaires made after the Great Depression than at any other time, but that’s often because old companies and old businesses go out of business and so therefore you end up with people being given the opportunity to go and start their road where they were crowded out of the market before.
And you saw that again after 2008, that there was a lot of relatively small businesses that grew relatively big and were able to capitalise on the growth that happened.
So protect your assets, firstly, if you think that there’s a crash coming.
I want to be very clear, I’m not a financial adviser, I don’t have a financial adviser’s licence or anything like that, so the things that I’m saying are just my opinion there for information or even entertainment purposes.
Don’t act on anything that I’m saying, it’s just my opinion, my take on things, and I could have a totally different opinion tomorrow.
So if you are looking for advice, please go and get that from a suitably licenced professional. That will apply to Derek as well, but I’m sure he’ll give you his own disclaimer.
Protect your assets in the first place and then look at those places to invest in after the crash. As far as me, because I’m always in the markets in some way, shape or form, I’m looking for those companies that I think will be more resilient and I also look for trading parts of the economy versus other parts or certain sectors versus other sectors.
So, for example, I might think that the travel and leisure sector will improve by more than the tech sector will, and so I might place a negative bet on the tech sector with a notional
value of X and then have the same notional value of X with a positive bet on, I’m just making this up, on the tourism sector and then see how that plays.
And of course, they both might go down during a crash, but the question is which one goes down by the most. And so those are the sorts of things that I look for.
We know that for example, that a very tech heavy Nasdaq index will often lead the SRP 500, which it has been doing for quite a long time. But we’re beginning to see a bit of a breakdown that relationship as we’re beginning to see the tech sector suffer disproportionately more than what the SRP 500, which is a much broader index has, or even the Russell 2000, which is even broader again has suffered.
You can look at certain components within the Dow. One of the trades that I got very correct going back sort of seven, eight years ago now six, seven years ago, something like that, was CSL.
Now I really like CSL. At the time they were about $60 a share. What I liked about them was the Australian economy was looking quite shaky and the Australian economy was actually beginning to fall. What I really liked about that Commonwealth Serum Laboratories, and then obviously it was Privatised and then listed on the market back in the 90’s think it was, early 2000s probably.
What I really liked about them is that a lot of their products were sold around the world and in the United States, they had a really big presence in the US. Which meant that a lot of their income was in US dollars and a lot of the economic conditions that would affect them as a company was going to be more affected by the US than they were going to be by Australia in my opinion at the time, and I’m oversimplifying what I thought at the time.
Now it’s actually relatively rare for me to even do that much fundamental analysis, but I like CSL and so I got into CSL and ultimately CSL went from sixty dollars to two hundred dollars, I’m not sure where they are today, I assume they probably have fallen back from those figures, but they went from $60 to 200.
But actually within the space of the first few months that I was in that trade, it went from 60 to 100.
Now, because I protected my risk, I was able to leverage that trade a fair bit, so that increase, that two thirds increase in the price, 50% increase in the price, actually was a really significant return on my capital at risk when I put that trade on.
So coming into this next situation, there’s always going to be trading opportunities. You just have to look for them. And again, I think that that’s really paying attention to your risk factors first. If you can pay attention to your risk and know that you’re safe and secure in absolute terms, then you can take a few more bets and you’re not going to get them all wrong, as a general rule.
I was a big fan of what Shak does with Delta neutral trading, that sort of thing. Probably easier to understand calling it nondirectional. That’s basically when a black swan event happens, you’re okay, I think it might go up, goes down, you still possibly make a profit out of that.
And for me, that’s a very, very cool factor. To me, it’s always at the sleep at night factor. So looking at that in terms of the day to day stuff, I’m a big fan of what Stephen Petith says about having three months’ worth of gold, silver and cash on hand for a day to day sort of expenses and that sort of thing as well.
So I’ve actually been applying that to my own situation, just building it up slowly, bit by bit. And that’s been fun, too. So that’s just a really practical thing, I think, in terms of the day to day stuff.
Where Do You Start if You Want to Learn Trading?
For someone who’s never actually learned about trading before, I know it’s definitely a good thing to look into if you’re looking to create an income, especially for the Crash, because having income sources which actually survives economic crashes is really important, so for someone new to training, where’s the best place to start with that?
I think it’s really important for people, I mean, if you’re brand new, it’s fair enough to just go buy a share in companies that you like and know, right, and just hold them for a long time. You can do that.
I think it’s quite helpful for people to learn a little bit about derivatives and how they work and some of the common strategies that are used. And the reason why I would say that is because almost nobody who does it professionally, as I know them, will just go out and buy one share, right?
People will buy a whole series of shares, if they’re in a buy only fund environment, they’ll buy a whole heap of different shares. But what they’ll do is they’ll buy shares in uncorrelated industry sectors in the hope that they get diversification.
So for me, I don’t really like the idea of diversifying for the idea that it’s safer because what I hear people say is, well, what happens is if part of the market goes down, or if some of your shares go down, that’ll be offset by the gains and the shares that went up.
But that also means that the shares that went up are going to be the profits will be offset by those shares that went down. What’s the point?
Now, I know it’s not as simple as that and over the long term, the share market does have an upward bias because of inflation and other factors. But I think that with derivatives, it opens up a whole world of other trading strategies and other trading ideas.
You don’t need to master them all, but just learn a couple and then start to sort of think about how they work and how they interact and whether or not you can incorporate those into other ideas that you already have.
I don’t think there’s any point in you learning trading, if all you want to do is just go and buy two or three shares in two or three big Australian companies that you know and hold them for the next 20 years, you don’t really need to learn anything, right?
You’re going to go buy those blue chip companies. I mean, lots of people do that and most people superannuation funds are sort of invested in that kind of way.
So if you’re talking about starting off in trading well, then learn actually trading. And trading is more than just the share market, it’s also understanding how other types of financial instruments can work.
For me, it’s recognising that stock market is a very different kettle of fish than the property. I see too many people try to apply property strategy to the market. Buy low, sell high. And I think Shak’s highlighted the weakness of that.
You got to understand it’s a totally different kettle of fish. The market can move three directions, only three directions, either up, down or sideways. And there’s different strategies that traders can do to position themselves to profit from that, whether that be the one we just described, buy low, sell high, then they either go directional, they’re trying to pick which direction the market may move, whether it be up, down or sideways.
Then you get a third dimension that basically they’re looking at time based strategies, pretty much like a dividend. Collectors, they’re trying to collect that profit every time.
But you can actually do that with options.
And the fourth is non directional. I think it’s a question of where do you want to be in the game? I always say to anyone who is wanting to really get going down that path, that is understand that it’s an apprenticeship.
It’s not something I don’t sell a quick, rich, quick scheme at all. It’s like if you sign up to your plumber, you’re going to spend a number of years studying and then actually on the tools, doing the work before you’re actually a fully-fledged, qualified plumber.
Why is trading any different?
I think it’s a process where you, as Shak has highlighted tonight, you begin to understand yourself in your relationship to money, in your relationship with the market, you develop strategies that you think fit your risk version, and that’s different for everybody.
What risk are you comfortable living with, sleeping with at night and in developing, fine tuning your craft and going from there?
And I think one of the best lessons my first mentor ever gave me was he said, Derek would want to see you build your confidence. That’s the biggest thing.
Getting small, consistent wins over time, as opposed to just getting big wins all the time and then losing, he said you can always lose money. He said, if you lose your confidence, you’re in trouble.
So for him, it was always getting building that confidence, building that confidence, strategy work. And I think that’s one of the things I’ve seen and notice with traders as they develop a strategy and then they stick to it, they swear by it.
Shak, in his situation, he’s a little bit more diversified as far as strategies are concerned as well. But that’s because he trades at a level of industry level as opposed to the retail trader, your retail traders. It’s a different game. It’s a different game.
It’s difference between high school and university and that’s where the mindset changes again in going up to that level.
I think it’s worth well worth noting as well that most professional traders, as in traders who trade for a living, don’t trade for themselves. They trade for a managed fund, a superannuation fund, a hedge fund, a bank or an insurance company or something like that.
So if those guys are working 9-5 or whatever for a living and you’re trying to trade and not even use strategies like they’re using, but just using basic strategies, you’re not going to be likely to outperform them, right.
Once you’ve got enough money behind you investing in the market, it should be another investment for you, it shouldn’t be a complete replacement for your income, okay?
It should be just an addition to it. If you’re younger and you want to actually do this for a living, that may be a different story. But, yeah, if the people who do it for a living can’t give up work to do it for a living right, because if they could, they wouldn’t be working when they’re working, presumably, then what makes you think you can?
I’m not trying to scare people off, but what I’m just saying is be realistic about what you’re likely to achieve and what you’re going to do. You have some advantages over bank traders, obviously, because you’re dealing with smaller amounts and they are at smaller to place, which means you’ve got more opportunities, but there are some opportunities that you don’t have.
But again, when you’re starting out, pay attention to your risk, learn what you can learn, but try not to get yourself too overwhelmed as well. I think it’s a balancing act with all those things.
Yeah, I like that.
And like I was saying before, I suggest anyone who’s listening to this, if it is something you’re wanting to explore in terms of creating, whether it’s eventually a full time income or whether it’s a side hustle like Shak was saying, just getting it not for replacement, but more for an addition.
And I do suggest that there are a few videos, because I’ve done this course, helped me understand a lot about the economics and the markets of how finances work. I couldn’t recommend it more.
So it does give you that basic foundation. Obviously, anyone who wants to take it further and learn it properly, then share more about this course. And I know there’s a few people in here who have done it, but that’s just what I’ll say.
And I’ll just put the link in the chat for those who want to watch it.