MARKET DOWNTURN ARE YOU READY TO JUMP AHEAD OF YOUR COMPETITORS

Article by Dr. Amarjeet Singh

Email: Amarjeet_Singh@gmx.com

Blog: www.coaching4champions.blogspot.my

Prepare & Learn From The Past And Other Companies Who Have Run Thru The Storm

7 Lessons To Learn

You can never really understand investing until you weather a market downturn. The valuable lessons learned can help you through the bad times and can be applied to your portfolio when the economy recovers. Listed below are some common investor experiences during tough economic times and the lessons each investor can come away with after surviving the events.

Lesson #1: Evaluate Your Egg Baskets

You're pulling your hair out because everything you invest in goes down. The lesson: Always keep a diversified portfolio, regardless of current market conditions.

If everything you own is moving in the same direction, at the same rate, your portfolio is probably not well diversified, and you could stand to reconsider your asset-allocation choices. The specific assets in your portfolio will depend on your objectives and risk-tolerance level, but you should always include multiple types of investments. (Read Personalizing Risk Tolerance to find out how much uncertainty you can stand.)

Taking a more conservative stance to preserve capital should mean changing the percentages of holdings from aggressive, risky stocks to more conservative holdings, not moving everything to a single investment type. For example, increasing bonds and decreasing small-cap growth holdings maintains diversification, whereas liquidating everything to money market securities does not. Under normal market conditions, a diversified portfolio reduces big swings in performance over time. (For more information, read Diversification: It's All About (Asset) Class.)

Lesson #2: No Such Thing as a Sure Thing

That stock you thought was a sure thing just tanked. The lesson: Sometimes the unpredictable happens. It happens to the best analysts, the best fund managers, the best advisors, and, it can happen to you.

The perfect chart interpretation, fundamental analysis, or tarot card reading won't predict every possible incident that can impact your investment.

Use due diligence to mitigate risk as much as possible.

Review quarterly and annual reports for clues on risks to the company's business as well as their responses to the risks.

You can also glean industry weaknesses from current events and industry associations.

More often, an investment is impacted by a combination of events. Don't kick yourself over unpredictable or extraordinary events like supply-chain failures, mergers, lawsuits, product failures, etc. (Learn how to find companies that manage risk well in The Evolution Of Enterprise Risk Management.)

Lesson #3: Proper Risk Management

You thought an investment was risk-free, but it wasn't. The lesson: Every investment has some type of risk.

You can attempt to measure the risk and try to offset it, but you must acknowledge that risk is inherent in each trade. Evaluate your willingness to take each risk. (See Measuring And Managing Investment Risk for information on keeping necessary risk under control.)

Lesson #4: Liquidity Matters

You always stay fully invested, so you miss out on opportunities requiring accessible cash. The lesson: Having cash in a certificate of deposit (CD) or money market account enables you to take advantage of high-quality investments at fire sale prices. It also decreases overall portfolio risk.

Plan ahead to replenish cash accounts. For example, use the proceeds from a called bond to invest in the money market instead of purchasing a new bond. Sometimes cash can be obtained by reorganizing debt or trimming discretionary spending. Set a specific percentage of your overall portfolio to hold in cash. (Learn how to take advantage of the safety of the money market in our Money Market tutorial.)

Lesson #5: Patience

Your account balance is lower than it was last quarter, so you overhaul your investment strategy before taking advantage of your current investments. The lesson: Sometimes it takes the market an extended period of time to bounce back.

Your overall portfolio balance on a given date is not as important as the direction it is trending and expected returns for the future. The key is preparedness for the impending market upturn based on an estimated lag time behind market indicators. Evaluate your strategy, but remember that sometimes patience is the solution. (Doing nothing can mean good returns. Find out more in Patience Is A Trader's Virtue.)

Lesson #6: Be Your Own Advisor

The market news gets bleaker every day - now you're paralyzed with fear! The lesson: Market news has to be interpreted relative to your situation.

Sometimes investors overreact, particularly with large or popular stocks, because bad news is replayed continuously via every news outlet. Here are some steps you can follow to help you keep your head in the face of bad news:

Pay attention and understand the news, then analyze the financials yourself. (Read What You Need To Know About Financial Statements for help.)

Determine if the information represents a significant downward financial trend, a major negative shift in a company's business, or just a temporary blip.

Listen for cues the company may be downgrading its own expected returns. Find out if the downgrade is for one quarter, one year or if it is so abstract you can't tell.

Conduct an industry analysis of the company's competitors.

After a thorough evaluation, you can decide if your portfolio needs a change. (For more information, read Do You Need a Financial Advisor?)

Lesson #7: When to Sell and When to Hold

The market indicators don't seem to have a silver lining. The lesson: Know when to sell existing positions and when to hold on.

Don't be afraid to cut your losses. If the current value of your portfolio is lower than your cost basis and showing signs of dropping further, consider taking some losses now. Remember, those losses can be carried forward to offset capital gains for up to seven years. (For more information, read Selling Losing Securities For A Tax Advantage.)

Selective selling can produce cash needed to buy investments with better earnings potential. On the other hand, maintain investments with solid financials that are experiencing price corrections based on expected price-earnings ratios. Make decisions on each investment, but don't forget to evaluate your overall asset allocation. (Read more in Asset Allocation: One Decision To Rule Them All.)

Conclusion
Downward stock market swings are inevitable. The better-prepared you are to deal with them, the better your portfolio will endure them. You may have already learned some of these lessons the hard way, but if not, take the time to learn from others' mistakes before they become yours.

Recession Power: 7 Reasons Great Companies Rise To The Top, Even During Recessions

How you perceive and respond to a recession will determine whether your business grows profitably or fights for survival.  Here are the top 7 reasons why great companies thrive during a recession and how you can do the same.  Here are 8 time-tested ways leaders can inspire employees to do their best.

• Are you tired of hearing all the "doom and gloom" forecasts regarding our current economy?

• Do you find yourself obsessing with worry and fear about the potential impact on your business?

• Are you ready to shift from victim mentality and knee-jerk reactions to opportunistic thinking and proactive strategies to profit even in recessionary times?

"Recession" is one of the most distorted, counterproductive words in the English language! Its mere use engenders a strong emotional response - from consumers and businesses alike - ranging from fear and pessimism to total sense of defeat.

Yes, we are in an economic downturn that may get worse before it gets better.

However, recessions are neither negative or bad in themselves. Recessions are "contractionary" periods, that force us to get more conscious about money and our spending, get rid of waste and conserve our resources where most needed. Call it the "yin" and "yang" of economic cycles.

Warning: It Is Your Beliefs About the Recession That Can Be Fatal To Your Business

Our economy and our businesses go through similar expansion and contraction phases. Why so many people - and perhaps you are one of them - sink to despair or paralyzed with fear by the word "recession" is because of your beliefs about recession and the meaning you give to the word.

"Recession IS strictly a matter of perception." Denise Corcoran

How you perceive and respond to a recession will determine whether your business grows profitably or fights for survival. Below are the top 7 reasons why great companies thrive during a recession and how you can do the same.

TOP 7 REASONS WHY GREAT COMPANIES RISE TO THE TOP, EVEN DURING RECESSIONARY TIMES

1. Great companies transform external threats into opportunities.

The Japanese are masters at crisis management and look at situations like recessions as polarities. Ie., neither all good nor all bad, but a mixture of both. The Japanese symbol for crises is a representation of two separate symbols: danger and opportunity. Such a perspective encourages responsiveness - not reactiveness. As a result, the Japanese focus not on the problem, but on new solutions ... not on survivability, but on growth ... not on short-term losses, but long-term prospects.

How are you perceiving the current downturn - as a threat or an opportunity? How have you reacted to past recessions? How might the recession actually be an opportunity for your business?

2. Great companies take advantage of and profit from changing dynamics in the marketplace.

A business can grow and profit during a recession if it understands the underlying dynamics of the marketplace. Crises tend to stimulate change in people. The challenge is to respond to such changes in a timely and direct fashion. To take advantage of these shifts, it is critical to address the 5 "W's."

• WHO

Who is doing the buying now? Although overall spending may be down, such trends cannot be generalized across all industries and business segments. Buying behavior shifts, changes and refocuses more than it declines. What new markets can you address that are actually on the rise?

• WHAT

What needs and benefits are priorities for your customers at this time? Are there new products or services that might address these shifts or serve as alternatives to satisfy the status quo?

• WHEN

What needs must the customer have satisfied now vs later? What special incentives will motivate the consumer to buy today?

• WHERE

During a downturn, customers often rethink their buying loyalties. From what sources are they currently buying? How can you make your products more accessible to your target market to buy?

• WHY

The "why" addresses customers' underlying motivations for buying. What motivations are driving customers' buying decisions today? What are customers' expectations of the future? How will these expectations affect their buying behaviour today?

3. Great companies catalyze seemingly "negative" times into positive moves.

In recessionary times, great companies aggressively look for the "silver lining in the cloud" and mobilize resources to seize those hidden opportunities. They act, not react.

The winners are those who recognize that their future is not determined by external events, but by their response to those events. They stay focused on what they have control over, and respond proactively to those they can't control.

What positive moves can you take instead of reacting to the recession? How might you better utilize your resources to seize hidden growth and profit opportunities?

4. Great companies make room for new growth by "de-cluttering" that which is marginal or ineffective.

During times of growth and expansion, it's easy to get hooked into over-spending, "over-doing" and over-confidence. Sloppy behaviors, attitudes and habits often creep in and get masked. All too often, companies go unconscious about important basics and become oblivious to "waste."

Great companies take advantage of down times to de-clutter "excesses" - ie., any drains on time, money or people resources generating little or no return They scale back to what they do best in order to be at their best. They make room for new growth and profits.

What overhead, projects or activities are draining your company's resources? What products, services or customers are clogging your profit pipeline and need to be shed? What operational "fat" must you trim to become a lean profitable enterprise, especially during this current recession?

5. Great companies build their resilience muscle to thrive in tough times.

In the 21st century, accelerating change, increasing complexity and escalating risks have become the new business reality. To withstand external shocks that can destroy a business, a company must build its resilience capacity.

Resilience, first, is a mindset. Resilience thinking transforms uncertainty into confidence, fear into action and adversity into advantage. On an organizational level, resilience comes from a strong culture based on operational flexibility, employee loyalty and team collaboration.

Great companies don't just rebound from a one-time crisis or setback. They build the capacity to expect the unexpected and continuously reinvent business models and strategies as circumstances change. They build their resilience muscle.

On a scale of 1-10, how resilient is your company right now in bouncing back from crises or setbacks? What next steps can you take today to build a capacity to expect and respond to tomorrow's unexpected?

6. Great companies aggressively position themselves ahead of the competition during economic downturns.

During economic downturns, most companies go on the defensive -- cutting back costs, downsizing marketing efforts and commoditizing products and services - just to survive.

Great companies do just the opposite. In recessionary times, they position themselves to win -- ramping up promotions, accelerating new product introductions, and keeping a visible profile. By taking advantage of the emerging opportunities, they not only differentiate themselves during the downturn but also position themselves for explosive growth after its turnaround.

Is your business taking an offensive or defensive position right now? What 3 aggressive strategies can your business take to keep a visible profile in the marketplace? How might your competitors' defensive reactions become your opportunities for new growth and profits?

7. Great companies find the "learning" and the "grander purpose" hidden within challenging times.

Our greatest challenges are our greatest teachers. Their "grander purpose" is to shift our thinking, behaviors, strategies and actions and ultimately aid us in our future growth.

Companies negatively impacted by a recession never see the grander purpose such times can offer them. Instead, they perceive only the worst, react out of fear and shrink to a victim mentality.

Great companies, on the other hand, see recessions as learning opportunities. They recognize that yesterday's thinking and strategies will not address today's challenges. For these companies, recessions motivate them to get closer to their customers, reassess their direction, and take action in new and creative ways. Their rise to the top is often a by-product of their beliefs, attitudes and responses to such challenging times.

How are yesterday's thinking and strategies holding you back today? What new attitudes and actions must you adopt to thrive in the current downturn? How might your company become a better company as a result of the recession?

Whether your company survives or thrives during a recession is, at least 85%, within your control. You control how you perceive it, how you respond to it and how you learn and grow from it. If seen in the right light, an economic downturn can be a blessing in disguise. Those businesses that do will rise to the top. Will you be one of them?

Strengthen your business in an economic downturn

The stronger your business is, the less likely it is to be affected by risks - if they do eventuate - or unforeseen events. Strengthening your business doesn't just involve financial management. It also includes strategies to retain and broaden your customer base, market your business affordably, keep morale high amongst your staff and improve business practices. You should also look for opportunities to network and form alliances; this will help minimise your exposure to risks.

To strengthen your business during an economic downturn you should consider the following strategies.

MAKING CUSTOMERS A PRIORITY

Customer service is about providing customers with what they want, when they want it. If your business provides quality customer service, you are likely to retain your existing customers.  This also means you have a greater chance of keeping and increasing your client base. 

Making customers a priority in an economic downturn may also involve:

·         running loyalty or customer incentive programs

·         adapting your products and services to be more suited to your customer's current needs

·         diversifying your business to minimise potential damage from the loss of a significant customer.

During a financial downturn it is particularly important to find ways to retain your existing customers by providing good after-sales service.

Marketing strategies

Reviewing your marketing strategies can help you come up with new ideas to increase sales and find better ways of using your marketing dollars. You should focus on communicating your competitive advantage.

Your unique selling proposition should also assist you to stand out from the crowd. Alongside this, it's important to develop strategies to measure the effectiveness of your marketing.

Marketing your business can be an expensive exercise, and during an economic downturn it's especially important to explore free marketing tools available to you, including social media and word-of-mouth advertising.

Managing staff

Make sure you have an up-to-date human resources (HR) plan. Use your plan to detail your staffing costs, which in turn will allow you to accurately cost your products or services.

Build morale and motivation by clearly communicating with your staff what is happening within the business. Try to involve them in decision-making and finding solutions.

During an economic downturn, you may need to change your staffing arrangements. If hours need to be reduced, try finding flexible solutions (e.g. you could ask some of your full-time staff to work a 4-day week, or use job-sharing arrangements). If you do need to let some staff go to save money, make sure you understand your obligations for ending employment.

You may also consider training your employees to undertake more duties. You can conduct a staff skills assessment to identify the training your staff may need.

Networking

Networking during an economic downturn can be useful to understand how other businesses are coping. You may also discover new opportunities, customers, staff, suppliers and business partners with minimal cost to your business. 

Consider forming alliances with other business, for example, by offering complementary services and discounts.

Learn more about networking in business.

Developing innovative practices

Developing innovative practices may help you adapt to changing market conditions and stay ahead of your competitors. As part of this process you should review if using technology will increase efficiency, reduce costs and make your business more competitive, for example, installing a customer management system, or doing business online.

Find out about innovation grants and support available to businesses.

Seeking assistance

Speak to a financial adviser or other types of business advisers, to help you survive an economic downturn. Find out what support services are available to help you.

  

Advice for a Market Downturn >>>>>>>>>>>>>>>>

Have a Calm Heart and Clear Mind

The markets have been on a tear following the recovery from the financial crisis—with some pundits saying a market correction is due. Here’s how to prepare yourself. 

KEY TAKEAWAYS

1.    Consider your reaction to a market dip now. That will help you not lose your cool when one inevitably comes.

2.    Betterment has a suite of automated responses that will keep your goals on track even when the market dips.

It’s a fact that people make decisions differently when calm and collected (academics call this a  “cold state”) compared to when we’re reacting to an emotional situation. You don’t need to be a behavioural economist to guess which state of mind results in better decisions. So it’s smart to discuss those situations as far ahead of time as possible, to set up a plan you can stick to.

It’s time to have one of those discussions.

Our customers have been investing with us since late 2010, and so have witnessed a strong positive market. Since the 2008-2009 financial crisis, global financial markets have more than recovered and have been on a tear, returning more than 115% cumulatively in a Betterment 70% stock portfolio since January 2009.¹ While this has caused increasing speculation of an imminent drawdown, the fact is that without a crystal ball, efforts to call a top or bottom are just as likely to hurt your returns as help them.

RECENT MARKET DIPS AND RECOVERY

Looking back, there have been multiple false ends to the rally through this period. Some of the drawdowns have been as much as 18% in a Betterment portfolio with an allocation of 70% stocks. However, it’s important to know that those who reacted to these short-term drawdowns would be significantly worse off now than investors who stayed invested throughout.

I don’t have crystal ball. Nobody does. But I do believe there will be a significant market drawdown sometime in the future—that’s part of investing and bearing risk.

However, it’s helpful to acknowledge today that you will go through that stressful situation tomorrow or in seven—or 17—years from now. This preparation will help you be less stressed, perform better and give you the ability to tune out the short-term noise in the future. Remember, one broken egg doesn’t ruin the whole dozen. On average you are better off staying invested at the correct risk level for your investment horizons than trying to maneuver and avoid a temporary market loss. The key is having a good long-term plan and sticking to it.

TRY THE FEELING ON FOR SIZE

I want you to plan for this event in advance and not react when it happens. Spend some time imagining how this would feel:

It’s Friday morning, and in the past week the S&P500 has fallen 20%. When you hear the morning news, it’s nonstop about how badly the markets are doing. The paper is comparing the drawdown to 2008. Frankly, it’s scary as hell, and when you look at your investments they are down 18% to where they were earlier that week.

What will you do?

(A) Increase your stock allocation or throw money into the market hoping to get some bargain prices.

(B) Nothing. Time to go work and conduct business as usual.

(C) Decrease your stock allocation to all cash.

I hope it’s clear that our advice will be (B), at least as long as you are already at your correct stock allocation. Reacting to market drawdowns by moving to cash is like swerving your car after you have hit the pothole. It won’t help you fix the damage that is already done, and it’s likely to cause a new accident or problem in the future.

That said, there are beneficial steps you can take in response to a market downturn—and some steps Betterment automatically does for you.

AUTOMATED BENEFITS DURING A DOWNTURN

After or during a drawdown, Betterment will automatically:

·         Tax loss harvest—this can help you capture any losses in your portfolio and use them to lower your tax bill.²

·Rebalance each of your goals to maintain your selected allocation level and/or buy depreciated assets at a lower price.

·         Alert you if you go off track for reaching your goals. We may suggest either a one-time deposit or a slightly higher auto deposit amount to make up for any market losses. However, it’s important to note that most people with longer-term goals will not fall off track.

KEEP CALM AND CARRY ON

Here are some actions you can consider during a downturn:

·         Revisit your goals and plans. Now, when the market has been doing well, is a great time to check on your Safety Net goal. Is it fully funded and at the proper allocation level? Have any of your goals gone off track and need a top-up?

·         Rebalance opportunistically. Market drawdowns are one of the most frequent causes of rebalances, as the losing asset become underweight relative to the stable assets. Rebalances are an automatic and systematic way to buy lower and sell higher. However, in taxable accounts, selling can trigger taxes, even if the asset is substantially below its all-time high. Rest assured, Betterment will never cause short-term capital gains tax to rebalance your portfolio. But you can additionally minimize long-term capital gains by making opportunistic rebalance deposits. Under the Portfolio page of your account, you can see the minimum deposit necessary to avoid a sell-based rebalance.

·         Liquidate your legacy losers. The most common barrier to consolidating your investments is capital gains tax. Take advantage of a short-term market drawdown and let go of an under-performing mutual fund, or diversify away from a single stock position. What can you do today? Prepare a short list of investments you would like to liquidate, and the price at which you will give them the pink-slip. Our tax-switch calculator can help with that.

·         If you can’t stand the heat… turn it down: While the best investment strategy is typically to stay invested, some people could find the stress simply to be too much. If you think you might make an extreme decision—such as moving to 100% bonds—if the drawdown continues, then it’s ok to reduce your risk temporarily. Adjust from 90% stocks to 60% stocks, for example, for a 60-day period. Make sure you set a reminder to revisit your portfolio at that point. While we don’t believe it will improve your performance from a ‘cold’ view, it means you’ll be less likely to make an emotional decision, and you’ll have a higher return per nights lost sleep.

·         Take a vacation from your portfolio: My own research has shown that people are more likely to monitor portfolios during volatile periods. The only problem is that the more you monitor, the riskier your portfolio will seem to you. A better strategy is to login less during volatile periods—a strategy successful investors with higher emotional follow. Sometimes it pays to be the ostrich.

·         Get a second opinion: Have a friend with a cool head? Sure you do—or give us a call. While Betterment is all about efficiency, we know there’s no replacement for a human conversation. And we love talking to you guys. Seriously.

The core reason investing has higher expected returns compared to a cash account is that it is the compensation for bearing risk. Your “job” as an investor is one of the easiest ones in the world, at least physically—you must do nothing.

That said, it’s not emotionally easy. It’s very uncomfortable to not react, even when it’s the right choice. So choose your reaction with a calm heart and a clear mind.

This article is prepared for sharing purpose and in no point serves as an investment direction or guarantees any returns in profits, rather a sharing from experts and market research of historical events and some pointers as guidance to the matter.