Recession Proof — Book Review & Quotes

How To Survive and Thrive In An Economic Downturn

Review

This book caught my attention first because it was free, and second because I’ve often thought about industries that are recession-proof, or even that do well in a recession. And now, as more and more people are predicting an economic downturn, I thought this was an appropriate time to read this book.

One misconception that I had going in, this was much more about how to “recession-proof” you as an individual and your career, rather than a broad overview of industries. That being said, there were still a number of good insights into ‘recession-proof’ industries that are valuable and deserve some more evaluation. In particular, as I think about it as an investor, thinking about what industries can do well in recessions creates an opportunity to, as Warren Buffet says, “Be fearful when others are greedy and greedy when others are fearful.”

He describes industries as procyclical (up when the economy is up, down when its down), counter-cyclical (doing well when the economy is down), and then others that are acyclical, or unimpacted by the economy.

Industries the book highlighted as positive environments during a recession:

• Healthcare
• Accounting
• Musical instruments
• Junk food (sadly)
• Farms
• Grocery stores
• Education
• Government

Industries that struggle when the economy is bad:

• Leisure
• Travel
• Jewelry

Another point the book makes has to do with taking opportunities during an economic downturn to buy in other ways: buy a house, travel the world, start a business. If you have money saved up, there is the opportunity to pursue these experiences at likely the lowest cost to you.

Some Highlighted Quotes From The Book

“Central banks have a really tough row to hoe in balancing the need to fight inflation and with the need to encourage growth. The difference between recession and inflation is like the difference between losing your job and having your house burn down. Recessions can have really negative, immediate impacts on people’s lives. Too much inflation, however, can destroy the wealth of an entire country.”

“Then they asked the question: “What two things drive markets?” I remembered thinking, no problem! This question is a softball across the plate! So I said, “That’s easy. Supply and demand.” The traders hung their heads in disappointment. They said, “We thought you were better than that.” I said, “What do you mean? If it’s not supply and demand, what is it?” They said, “The two things that drive markets are fear, and greed.”

“Markets are driven by two factors: fear and greed The technical definition of a recession is two consecutive quarterly declines in growth, as reflected by GDP The ISM Manufacturing Index is a critical leading indicator of U.S. manufacturing activity and total GDP growth Chinese consumption of global commodities is high, and a weak China hints at weak global growth U.S. unemployment is an important indicator of the health of the U.S. job market, and a critical factor for setting Fed policy.”

“Having options is the name of the game. Recessions take options away; this book develops and maintains them. You can minimize the damage personally and professionally. You may even use a recession as an opportunity — a chance to get more education, become more valuable for your company, start a business, or buy low into the market.”

“When a recession happens, people have less money. When you have less money, what kinds of things are you going to continue buying? You’re definitely going to continue buying food. The result: farming regions and grocery stores do okay during a recession. What are you going to stop buying? You’re probably going to think twice about that extravagant family vacation to Disney World. The result: tourism-dependent places like Florida, and industries like leisure and hospitality, are hit hard. People aren’t going to choose a trip to the Bahamas over buying groceries any time soon. Well, they might, but they shouldn’t, and they usually don’t.”

“Most industries and businesses do well when the economy does well, and these are called procyclical businesses. Some industries like tourism and leisure are very procyclical, and when the economy is growing, they experience big booms, but when recession hits, these industries suffer big busts. In contrast to procyclical businesses, some industries actually do better during a recession (like musical instruments and junk food), and these are called counter-cyclical. Finally, some industries do okay all the time (like staple foods), and they are called acyclical, because the business cycle doesn’t affect them.”

“Ignore the noise. Here are the only numbers you need to pay attention to in order to predict an economic downturn: 1. The ISM Manufacturing Index.”

“Declines below 50 are a good leading indicator of U.S. recession, with declines below 40 providing an almost guarantee that a recession is underway.”

“The ISM Manufacturing Index is the most important indicator out there, by far. It is everything. If you watch nothing else, watch that. You can get it for free here: www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm Set up a Google Alert so that you can see this number whenever it is released.”

“If you want to up your game even more, you can keep track of the Beige Book. It’s a report put out by the “Fed” — the Federal Reserve System — based on sentiment and activity information collected from executives, economists, and various business professionals about what is going on in their businesses and how optimistic they feel about where their businesses are headed. Here is a link to the Federal Reserve Beige Book reports: http://www.federalreserve.gov/monetarypolicy/beigebook/”

“2. The Fed’s interest rate. The interest rate can be understood as the “price of money.” It’s how much money you have to pay (in interest) to get money (take out a loan) in order to invest in something. When interest rates are low, money is cheap — so people want to take out loans, and use that money to start businesses, invest in the stock market, or buy a house. When interest rates are high, money is expensive, and people are more wary of spending or borrowing it. They’re not going to take out loans unless they’re really, really sure that their investment is going to pay off.”

“Watching for Fed interest rate cuts is most important, because the Fed can raise interest rates even if growth is not fantastic, if it wants to kill inflation. Fed interest rate cuts mean the economy is slowing.”

“3. The U.S. unemployment rate. A one-month rise is nothing to fret over, but if the unemployment rate goes up four months in a row, that’s a bad sign. In fact, it’s really bad, because the unemployment rate tends to lag the business cycle. The numbers are all here, in the U.S. Bureau of Labor Statistics’ reports: http://www.bls.gov/bls/proghome.htm”

“The truth is that they need to keep people tuned in every day, so they’ll make mountains out of molehills. Ignore the noise, and just pay attention to those key indicators.”

“By the way, the GDP — the Gross Domestic Product — is one of those numbers you don’t need to pay attention to. That might sound strange, since it measures the value of everything that the country is producing. But really, the GDP is “Zeus on high.” It’s way off in the distance. What matters to you, what can help or hurt you, is the job market. Besides, GDP numbers are revised so much that the actual data is published almost six months after the fact. That’s too late! GDP is very backward-looking, while the three indicators that I’ve told you about are more forward-looking — especially the ISM Manufacturing Index. Look ahead of you, not behind you.”

“There is a very tragic phenomenon called employment scarring, which refers to the fact that taking a low-paying job when you’re young will reduce your pay for the entire rest of your career.”

“Anything that still involves empathy, people skills, customer-service finesse, or creative problem-solving is not likely to be automated any time soon. If you have those “soft” skills, use them. If you don’t, get them. ASAP.”

“How can I possibly afford to own a dream home or travel around the world when the economy is doing poorly?” Let’s turn that question on its head. How could you possibly afford to buy a house or go traveling when the economy is doing well? In up years, everyone wants to buy a house and the real estate sector goes nuts. It becomes a seller’s market. Just ask anyone who tried to buy a house in San Francisco in the middle of the dot-com bubble in the late ’90s. It sounds like the best time to buy, but it’s actually the worst. Any financial advisor will tell you to buy low and sell high. When it comes to buying a house, that means: buy during a recession. If you can swing it financially, this is the time to do it. As for traveling, remember that tourism, leisure, and hospitality are industries that are exceptionally vulnerable to a recession. When people have less money, they’re going to cut back on these luxuries. That means that in down years, hotel rooms and plane tickets get much cheaper. If you have some money tucked away for that round-the-world adventure you’ve always dreamed of, a recession is the perfect time to get maximum bang for your buck. When the economy stinks, what are you giving up in order to do that? Not much.”

“Your career is a sculpture. When you’re figuring out what to do with your life, you’re like a sculptor who starts out with a big block of rock. That block of rock is all your possible careers — plumber, pilot, pianist, and everything else. How does a sculptor work? Not by adding things, but by taking things away, until the only thing remaining is what should be there. When you go out into the world, try a job out, and decide it’s not for you, you’re chiseling a piece off of that block. If you do that enough times, you’re left with all the things you do like and are good at. That’s your sculpture; that’s your career.”

“This is the kind of sign I’m talking about. If you’re a top performer at a global leading company and you’re essentially working just one hour a day, it’s time to get out. Your company is going down.”

“There’s a famous negotiation book by Roger Fisher and William Ury called Getting to Yes. The book puts forward a very simple, but powerful, rule of negotiation: whoever has options has power.”

“It’s not about what you do when layoffs are already happening; it’s about what you did during all those months and years leading up to that time. It’s about that whole satchel of skills that you built up over time in your job. Always be learning. If you’re not learning, you’re at a higher risk than you think. If you’re not sharpening your tools, they’re going to get rusty.”

“TIME Magazine recently had an article about the things we have now that, in the future, we’ll think are ridiculous (you can read that here: http://tinyurl.com/joncu45). One of the things on the list is offices. If you’re an older worker, remote contract work could be for you.”

“If you get a degree in nursing, you’re shelling out serious money, but also qualifying yourself for one of those undeniably necessary professions that a recession can’t touch.”

“You can see how education was a great equalizer of opportunity. The unemployment for people with no high school diploma was at a peak of 15.9 percent during the last cycle, while it was at a peak of 11.1 percent for those with a high school diploma, 8.9 percent for Associate’s degrees, and only 5.0 percent for Bachelor’s degrees. In other words, after the Great Recession there was an almost 11 percentage point difference between the highest unemployment rate for people who didn’t finish high school, versus people with Bachelor’s degrees. What a difference education makes in the job market!”

“Before I started my Master’s in Negotiation, Conflict Resolution, and Peacebuilding, a friend of mine said, “Don’t bother with it. Just buy the books and read them.” He was partly right: you can learn the skills just from reading the books, and that would hugely reduce your costs and boost your ROI. If you check the books out of a library, your monetary investment would be zero. But here’s the problem. You wouldn’t get that piece of paper at the end that proves you read those books. Plus, what is the chance that, without the structure and deadlines of the degree, you’ll actually read all those dozens of books? If you’re like me — a busy professional whose most precious and scarce resource is time — it really helps to have that external pressure to prioritize the coursework. Quizzes at the end of each reading assignment really force you to read and absorb every word. Group papers and projects force you to do the work and the reading.”

“You don’t need to have a PhD in Economics to have a sense of which industries are recession-proof and which ones are recession-prone. It all comes down to human wants versus human needs. If people need it, they’ll still pay for it, even when times are tough. If they only want it, they’ll stop paying for it when times are tough. So need-based industries are recession-proof, while want-based industries are recession-prone.”

“Now ask yourself, what do people need? They need food. They need healthcare. They need education. They need protection from crime and foreign invasion, and they need someone to show up with a hose if their house goes up in flames. So grocery stores, hospitals, schools, and core government departments should do fine, recession or not.”

“Now ask yourself, what do people only want? They want restaurant food. They want trendy new clothes and jewelry. They want luxury vacations. So tourism, hospitality, and retail.”

“Any industry that is tied to demographics is recession-proof. The funeral industry is recession-proof, because people are always going to die. Healthcare is recession-proof, because people are always going to get sick. With baby boomers aging fast, and Obamacare expanding, these industries are actually growing. It’s a great time to be an undertaker. It’s morbid to say, but it’s true.”

“Primary and secondary school education is similarly recession-proof. When a child turns five, he or she has to go to school, and needs to have a teacher. It’s a law; it has nothing to do with the economy. When property tax revenue drops, hiring slows down, but it can’t grind to a halt because the kids need teachers and there are regulations dictating how many students you can have in a classroom. Add on top of that, the fact that grade school teachers are heavily unionized, and you’ve got yourself a recession-proof industry.”

“Accounting is recession-proof. Why? Because whether businesses are doing well or doing poorly, they need to keep track of just how well or poorly they’re doing. If they’re running a loss, all the more need for a bean-counter to add up all the tax write-offs.”

“America is a big country. Europeans like to make fun of Americans for not wanting to travel internationally, but they’re forgetting just how big a country America is. The United States is almost two times the size of the entire European Union, which has 28 members and six candidate countries. In the United States, you can move to hundreds of different micro-economies without ever leaving your country. This is a great and underappreciated advantage of being American. Most people in other countries don’t have that advantage. You should make the most of it.”

“Keep learning. You may have heard the slogan: “Dress for a job you want, not the job you have.” Well, I would say: learn skills for the job you want, not the job you have. Remember that a human resources manager isn’t going to look at your resume for five to 10 minutes. They’re going to look at your resume for six seconds.”

“Building yourself means building your skills, your credentials, and your network. It’s about growing You, Inc. into new markets. It’s about expanding your brand. By doing this, you keep your options open. You reduce the chance of unemployment. You also reduce the length of unemployment — which will minimize employment scarring and its terrible effects on long-term earnings. Remember my father-in-law: he went from contractor to nurse to hospital purchasing manager. It was a career run, but made possible only through building.”

“A huge part of building yourself is building your network. I know it’s a cliché. I know you’ve heard it a thousand times. But it’s so fundamental, and so often ignored, that I have to mention it, over and over. If you’re still reading this book rather than putting it down and making some calls and sending some emails and signing up for some conferences, then I haven’t mentioned it enough times yet. Get thee to an industry conference. Find the big dogs. Network, network, network. You need that list of five to 10 people you can call any time that would give you a job. Whatever your career — blue collar, white collar, IT, cosmetics, anything — you need that list. You need that list.”

“Keep in mind, though, that the best time to network is not during a recession. The time to network is during the good years. Then, when the downturn comes, they can help you. You can also help them: it’s not just a self-serving thing. If you network during a recession, you’re going to meet a lot of people like you, people who are pumping you for a job — or who are being pumped for a job.”

“The other building you can do in an economic downturn is building a business. There are lots of good reasons to start a business. It’s an opportunity to create eulogy lines, not just resume lines. A business becomes part of who you are, and not just something you do. Even if it fails, it’s something you’ll talk about and remember your whole life. You’ll have become a more insightful business person, a more seasoned professional. It forces you to get better at many different things.”

“Starting a business in a recession is buying low, which is the first rule of investing. You’ll be competing with firms who are shrinking and laying people off. Meanwhile you’re hiring, you’re growing, you’re brand-new and shiny, and that looks very good to potential clients.”

“Narrowing down your value proposition is all about finding your unique skillset. There’s an important distinction between blue oceans and red oceans. A blue ocean is a business niche with few competitors. A red ocean is a business niche with many competitors; they’re at each other’s necks and it’s getting bloody. A red ocean is a tough place to succeed if you’re just starting out. You want to be in a blue ocean, the place no one’s been before. The way to find that blue ocean is to figure out what you provide that no one else does. This concept is put forward in the book Blue Ocean Strategy.”

“Remember that whatever you are investing in, you are competing with folks who do nothing all day but study all the ins and outs of that market. So only invest in things that you understand. Don’t be a house flipper unless you learn the real estate game well, and make a business of it. It’s not something you can enter casually.”

“When it comes to retirement, the past is the future. We’re going to become more family-oriented out of necessity. We’re going to rely less on the government and more on our children, like we did for most of our history as a species.”

“The First Rule: buy bundles of stocks, not individual stocks. Bundles of stocks go by names like mutual funds and ETFs (exchange-traded funds, a mutual fund that trades more like a stock).”

“The Second Rule: buy in bust times, not boom times.”

“The Third Rule: retire at the right time.”

“If you have chops in education, healthcare, and government, hunkering down in those stable sectors is a good option.”