Monday, January 5, 2009

A recent discussion on recession and it's affects

A recent discussion I came across on recession. Thought of sharing it with you.


A reply to it:

Thank you for the mail on actionable insights to prepare for the
recession. I wish to differ on certain points mentioned by the
"financial consultant"

First of all, Recession means different things to each person as a
Businessman, Investor or employee

To the Investors, it is the best time to buy (or invest). During
recession precious land becomes affordable, cost of construction
becomes less. So if you, as an investor is planning to invest in a new
project that involves construction works, this is the best time. This
is becuase, a typical construction of mall, factory or a resort takes
about 1.5 to 2 years in India. The recession will be over in say 1-2
years. So your new business will be opening up at a time when the
economy is recovering. And if you are planning to invest in already
established businesses (instead of new ventures), this is still a good
time. This is because, in good times the promoters of this business
will ask you for a heavy goodwill amount. In recession, even the best
companies may have cash flow problems and may be willing to bring in
equity at investors terms. And once the recession is over, these
companies will get back to form. (Recession has happened many times,
infact it is a cycle, so dont think of recession as a Tsunami that
wipes out everything).

To the businessmen, recession can be a bad time or a good time, based
on what thier position is. To begin with there are some industries
that do good when others do badly. You just have to search out for
those sectors. Recession can be bad to a business that has heavy
overheads and its business is dependant on other businesses which
might get a bad kick from recession. Businesses with good cash
reserves should hold on to thier cash, as they can expect red figures
in the profit loss account for few months to come. It is a good time,
for them to eliminate fat (both in terms of bad staff and unproductive
assets). When the times are good, businesses seldom care about best
practices and efficiency. I was involved with a factory during a
downturn period, and in order to survive, we had to take extreme
measures with regards staff management, implementation of new
machineries and all kind of best practices (much aganist our will) to
survive. To finance these we had to merge with a competitor as well.
Bad times made that business so strong, that in 2008 (when the global
economy calls it a bad year), they made a record profit and became
market leader in thier sector. So if we take the recession properly,
it is a good time, to make a business strong.

To the Employees, recession can be good and bad, again. Lazy and
unproductive employees will have a hard time holding on to thier jobs
and in case they lose thier jobs, it will be difficult to get a new
one. One good thing about employment market during recession,
especially in India, is that I am hoping to see "job hopping" slow
down. But recession is a good time, for loyal, hardworking staff to
show thier worth to the company. By working more than others, by
accepting mangement decisions, by perhaps sacrificing bit of thier
salaries, these employees can show to management, they are soldiers
they can count on. And they will be most visible. These employees,
have a better chance to get promotions and upgradation in salaries
during the good times.

My comments where I disagree to the previous mail, are ;

1. Dont sell your stocks, if you can afford to keep them for 1- 2
years. Most of the stocks are now trading below thier intrinsic value.
By selling them at loss now, you will buy them at even higher cost
later on. So hold on to them. Put your shares in locker and go to
sleep. Wake up after 2 years, to see its price. On a different note, I
dont recommend day trading to anyone, its almost like gambling. With
stocks you should buy and sell, with long term view.

2. I dont agree to not investing, for reasons I have mentioned above.

3. Dont sell your assets now, the price is Below its real value. Wait
for 2 years for boom to start again.

This are my views. About me, I am the CEO of a Venture Consulting firm
based in Calicut (Kerala). I did my masters in Finance and Investment
from Exeter University, UK. I have been in Gulf for many years. I had
worked at german strategy advisory firm (Dubai), as consultant.
At Capella, we advice investors on investing in various of projects,
by conducting business research, preparing project reports, business
plans, business counselling and venture project management.

Forwarded e-mail
As forwarded by a financial consultant, in Dubai.

>> *Recession is coming... make your own judgment, don't panic! Do
what is wise.
The recession looks very eminent. It is really time to take pro active
steps to avoid a painful time in the next two years which is how long the
recession is expected to last.

> Suggestions:

> 1. Don't take any loans; buy homes, properties with loans, or even cash. Keep as much cash as possible.

> 2. Pay off as much of personal loans, private loans, as debt collection
will be hastened.

> 3. Sell any stocks you can even at lower prices.

> 4. Take money off from Trust Funds.

> 5. Don't believe in huge sales forecast from customers, be extremely
prudent, lowest inventories, reduce liabilities.

> 6. Don't invest in new capital.

> 7. If you are selling homes/ properties/ cars, do it now, when you can get good prices, they are going to fall.

> 8. Don't invest in new business proposals.

> 9. Cancel holiday plans using credit cards.

> 10. Don't change jobs, as companies will retrench based on 'last in first

Stay cool, wait, and if you took all of the above actions and more, you
probably will be better off then many. This is not a rumor.
Bear Stearns is the first of many banking and financial institutions that
will start falling in the not too future. If Bear Stearns can fall, so can
JP Morgan, Citibank, HSBC, and the whole world. US economy falls, the rest will crumble.

India and all those self economies will be the most protected, but not

Europe may be a little stronger, but not China, another giant place!
Malaysia will see significant impact.

> Be alert and pass this to your friends!!!*

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