How To Use The 2023 Recession To Get Rich

How To Use The 2023 Recession To Get Rich – 

Despite the 2023 economy looking pretty shaky with high inflation the Federal Reserve raising rates and the stock market suffering over the past 12 months or so, over this time period many of the world's best investors have been busy buying into the market While most other investors on balance have been selling Warren Buffett for example dumped a huge chunk of money into the market in 2022 after being heavily criticized for staying too much on the sidelines in recent years and this is not an isolated incident in the crash of 2020 the super investors were buying in 2008 they were buying in 2001 yep exactly the same thing happened they were buying in that as well and in hindsight this strategy of investing heavily during weak economic periods has worked incredibly well, but there are three fundamental rules to remember to make sure you come out on top and luckily for us Warren Buffett disciple monism bar who is very good friends with Charlie Munger himself and actually once paid 605 thousand dollars to have lunch with Warren Buffett valid monism recently took the time to explain these three investing rules so let's talk about them and the first which is particularly relevant in times of high inflation and economic weakness is looking for

companies with a durable competitive Advantage let's say you have some small city in England and it has no Thai restaurant for example and someone looks at and say I think my restaurant do really well here and they open a Thai restaurant and they do really well and they're full all the time and they can charge

premiums versus London and other cities that is going to attract more people and more entrepreneurs to open Thai restaurants until eventually the economics of the Thai restaurants in that small City may be no different from other parts of England the nature of capitalism is such that if someone builds a better mousetrap which you know grows the company and generates High returns and equity and very profitable and so on they have a Target on their back and in general that will attract a lot more competitors to enter your space and they'll try to Chip Away at whatever Advantage is there and this is an important point being first or something might work for a while but it doesn't work forever you know Snapchat was first of stories it lost Atari was first in video games they lost Motorola made the first mobile phones they lost being a first mover is nice and all but what you need to look for is an intrinsic characteristic of a business that permanently sets it apart from its competitors something that another company can't replicate no matter how hard they try that's what we call the moat and we see this a lot these days there's one type of moat that is always impossible to replicate and it's one that monism talks about in this next clip now sometimes what happens in capitalism is we get aberrations when the there are pharmacists started the Coca-Cola Company he had no idea what he was on to and no one could have imagined that coke would end up being the brand it is today and actually quite frankly there's nothing particularly magical about Coke in the sense that they say they have the formula locked up in some bank vault in Atlanta but it's really easy to clone cope, 

and several companies have done that when Pepsi introduced the Pepsi challenge in the 1980s they basically gave people two callers to drink with no brands on them and they said tell us which one is better and most people prefer Pepsi because it was a little sweeter and then after they took the test they would tell them oh by the way you preferred Pepsi but if they presented the two drinks to most people with the brands Coke and Pepsi most people would prefer to take Coke, so Coke's moat is if you look at it kind of objectively it really doesn't make any sense they have a product that can be very easily cloned they have competitors in many cases who have better products, but a brand got built and yes we see it time and time again the most powerful modes tend to be the brand mode's bonus is Right Coke was objectively proven to be less popular Then Pepsi if you took away the label but with the label on coke is the number one drink in the world without question, 

so businesses are with very desirable stickers despite it being slightly counter-intuitive actually have the strongest moats and are some of the best businesses to own as an investor in tough Economic Times think about it essentially having a moat means people are coming back to your product or service and won't switch to an alternative and that's handy because when people are tight on cash it means they won't buy the cheaper product they'll still buy yours another example of your company with a brand mode is Ferrari you know there are cheaper cars out there are cheaper hyper cars out there, 

but Ferrari's demand just never drops you know Louis Vuitton you actually reckon their products are high quality of course not they're made out of the same stuff that everything else is made out of but what people buy is the brand they want the design they want the logo and what that represents but even with that said no moat is forever so on top of identifying we also need to keep tabs that the moat endures through the years the nature of capitalism is that Mort is very likely eventually to get filled in so if we go back in history you look at businesses that have survived and thrived for a long time very few businesses that are founded make it past their first year a few will make it past their fifth year and even fewer will make it past their 10th year 20th year 30th year it just keeps going down when we look at businesses that may look dominant today our job as investors is to project what these businesses may look like 5 10 20 years from now and that is a very difficult exercise because you have all these marauding in Intruders who want to take away your Mort who want to take away those profits and they're continuously coming at you that's what makes this a fun and exciting Endeavor for my point of view because trying to figure those things out is not that straightforward so while apple is a ridiculously strong company with a big brand mode and a big switching mode you always need to keep tabs on the strength of the moat as an investor;

 so how do you spot them out well remember Phil town exercise look at the long-term track record of Revenue earnings per share free cash flow and equity and you know just have a look at whether they're consistently growing at over 10 per year in the case of Apple their chart looks pretty good remember that Equity com gets thrown off due to all the Sherry purchases but generally they seem like they have a moat because they've been able to grow uninterrupted for a very long period of time on the flip side if we saw declining sales or declining margins or maybe there's been a lot of negative media sentiment or they're closing stores stuff like that these can all be signs that emote is in fact being crossed but yes anyway looking for businesses with emote is really the first big lesson to successful value investing in a tough economic time but let's now turn our attention to another key element that Monash describes next so one of the arrows in our quiver as value investors is patience so in general we don't really have or the most part in information Edge so if I'm looking at a business there's not much I'm going to be able to come up with about that business that a lot of other people haven't figured out or are capable of figuring out then there can be another Edge which is an analytics Edge which is two individuals have the same information, 

but one person is able to look at that data and come to conclusions that are different from the other person and so an analytic Edge can be a real Edge, but even that is difficult because there's a lot of smart people looking at a lot of companies in the one Edge that is probably the strongest Are is a Time Horizon and even Jeff Bezos says that a lot of his competitors are focused on the next one two or three years and he said that Amazon always took the approach of looking out longer looking out five or seven or ten years and he said that when they looked out longer and they invested with their longer time Horizon they got  an edge and they were willing to make investments where they knew that the payoff is not going to come in three years now this applies to companies themselves but it also applies to us investors and I can't stress enough how important this is having a long-term Outlook is hands down our biggest Advantage as value investors that only manage our own money you know no one will ever tap us on the shoulder and kick us out because we haven't made a 20 return by next Tuesday,

but that is the game being played by the active funds on Wall Street and it traps them into thinking incredibly short term literally quarter to quarter but as monism says Long-term value investing is a game of patience we buy great companies at favorable times and then all we have to do is wait that's really if it's boring it's a game of patience and it's a game of relative inaction we wait until the crisis blows over, and the recovery kicks in this might take one year might take three might take five, but the point is we can wait and when we're patient for great opportunities and then we focus on holding these businesses for the long term that's when we profit so I think yes uh the ability of an investor to think longer term and this is one of the reasons why the index does so well the index is too dumb to know that it owns Microsoft it's too dumb to know that it owns alphabet and it's too dumb to sell these things and it keeps these things endlessly forever so we look at the S P 500 index for example which is 500 for the most part great businesses and every year they might take one or two businesses out and replace them with one or two new ones but usually the ones they take out are not the ones that are climbing like recently they removed General Electric from the Dow Industrial Average and if you look at the Dow Jones Industrial Average over time in general you get rising stars going in and you get companies that have passed their Prime being taken out the S P 500 would hold an apple or a Microsoft or Amazon or alphabet for 20 years to 30 years and that type of holding period on these great businesses can be a great Edge and isn't it crazy that the index the S P 500 beats over 90 percent of active fund managers over the long run it's a pretty 

good example of just how much a short-term mindset can impair you as an investor so we stay around businesses that have proven modes and we always look to hold them for a very long period of time and if you can do those two things a lot of your long-term risk of loss is taken care of even if you make a mistake with your valuation the second approach is where you identify a great compounded that because of people not willing to look at the right time Horizon then you can look around the corner you could pay what would be either reasonable or even an expensive looking price and end up with a great result I think you could have paid any multiple for Microsoft when it went public in the 80s almost any multiple for Walmart when it went public in the 70s and you would have still done extremely well so if we are is we have a crystal ball that can tell us what a company might look like 50 years from now 30 years from now then you know we could buy something at a billion dollar market cap and it might become 200 billion that's the big Advantage with this type of strategy if you're Ultra long-term focused and buy high quality businesses with big modes you can accidentally buy them expensive and they can still be worth a hell of a lot more in 10 to 15 years from now on that doesn't mean you throw valuation out the window but it is nice to know that if you're buying a high quality business you can buy it at a fair price as opposed to just buying it at a Bargain Basement price and you can still do very, 

very well that's what Warren Buffett did with Coca-Cola's what he did with apple there are countless examples but with that said monism also raises one more very important point to absolutely must remember once you've found that big winner so have a listen to this there are very few businesses in the universe of listed companies that would qualify in Grace as great businesses probably I would say less than five percent or three percent of listed companies would qualify as great businesses if you find yourself in the very happy situation of fractional ownership or one of those businesses hang on for dear life this is the one of the biggest mistakes I've made over time guy owns a stake in Ferrari thanks to monism thank you monism for giving guys and monism doesn't own for us and when I made the investment in Fierce Chrysler in 2012 when the market cap was 5 billion and their sales were 140 billion be it Chrysler was trading at less than four percent of Revenue and eighty percent of Ferrari was inside that 6 billion and plus there was all the Jeeps and RAM ,

and Maserati everything else in there and at that time o'bri funds owned something like something Northern one percent of Ferrari when I looked through the Ferrari stake and we made a lot of money on the investment and one of the dumbest things I did was Ferrari looked optically expensive to me and and I sold and we would probably have three times that amount of money if I just kept the position and like Charlie says all too soon and why is too late and that's really the final puzzle piece once you find the business that has the wide mode once you've committed to owning it for a long period to let it compound and once you've bought it at a fair price then don't let that go if nothing fundamental changes it's better just to keep holding unless it's egregiously overpriced you know actually let that business do what you thought it would do over a decade or two let it compound over 20 years like Amazon has like Google has like 10 cent has that's the key to getting the big multi-baggers resisting the temptation to cut the flowers and then water the weeds we need to do the opposite we water the flowers and we cut the weeds and that's really The Not So secret formula that value investors use to profit during tough Economic Times number one find the companies that have the intrinsic characteristic that sets them apart that sets them ahead number two look to hold them for the long term and three just don't get caught panicking and selling them before they have been able to compound for you but overall guys they are the three lessons from Monash to help you come out on top investing in a time of economic crisis remember always always always stay rational anyway guys leave a like if you enjoyed and save our site   if you'd like to see more, 

but that will do us for today thanks very much for reading and we'll see you in the next article.

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