Do not play with overvalued stocks during a recession
Did you know that many Indonesians do not understand a recession and do not know how to deal with it?
A recession is inevitable. Maybe not today, next month, or next year, but it will happen. If a recession actually occurs, especially a global recession, the consequences will be much more severe and will certainly affect your life.
Unfortunately, many Indonesians do not understand this. They think that a recession only affects the country, specifically the government, the wealthy, and large corporations.
No, a recession can affect everyone; from those living in ivory towers to those living under bridges, everyone will suffer from it. The problem is that many people are not prepared for a recession, not because they are short of money.
No, that is incorrect. It is because they are managing their money incorrectly. So, for those who have money and think they have assets, but when a crisis strikes, it is important to know: are you ready for it?
Are you sure their value will not drop? Are you sure your assets are liquid? Or perhaps they cannot even be sold. Do not let that happen, because I have seen it happen often, from the crises of ’98 and 2008 to the crisis after COVID-19.
It turns out that many people are still unaware of and unprepared for a recession. Here are a number of investments that seem safe and could be a pitfall for you, but which are actually dangerous to hold, especially during a global recession.
Fraudulent stocks are truly dangerous
You probably know that US debt is not decreasing, but is actually increasing. And you also know that global tensions are not decreasing, but are actually becoming more chaotic.
Therefore, dear readers, I am going to share five types of investments with you that seem attractive and safe, but are actually dangerous. So this is not an opinion, but based on data and recurring events during every economic crisis.
The first common pitfall is investments in so-called ‘diluted’ or speculative stocks. This is dangerous if you own stocks with weak fundamentals. Because when a recession hits, these kinds of ghost stocks will plummet immediately. Consider, for example, shares of companies that have been operating at a loss for years and never make a profit, but whose valuation is too high.
In Indonesia, many companies are selling shares that have never made a profit, so-called ‘diluted’ shares, but they are still fueled by stories about AIUEO building a space station on Mars. Some claim that the company will be acquired by Nvidia; it is all nonsense.
No, that is not true. Even crypto-related stocks. There are many crypto-related stocks, but in reality, they have no fundamentals.
So you need to be prepared. What happens when a recession hits? Investors will seek out safe havens. Investors will look for safe investments. And speculative investments will certainly be discarded, including stocks.
Speculative stocks will certainly be discarded. Remember, we are investors, not speculators, but most Indonesians cannot see the difference between the two.
What is speculation and what is investing? And what happens later, when a recession hits and liquidity suddenly dries up? Well, be prepared. Stock prices without fundamental value will certainly plummet, sometimes by as much as minus 60%, or even more than 90%.
A real-world example: when the Bubble.com recession hit, everything disappeared. Market capitalization was wiped out, with a total discount of more than 70%. Technology stocks also plummeted in 2021-2022.
Many startups even became zombie companies. If you already know and understand the nature of the stock market, then you know that I invest in shares of companies that are worth investing in.
We invest in specific things. So, if you do that, invest in companies that are profitable and have positive cash flow. It is even better if they can pay stable dividends. But you must understand that only companies in defensive sectors can survive a recession: basic necessities such as consumer goods, utilities, and energy—things that are absolutely still needed, even when the world is in a recession.
A simple example: during a recession, you still need railway lines, logistics, and other things. You still need food and water. It is impossible for people who normally eat rice to suddenly start eating stones when a recession hits.
That is precisely what defensive sectors are all about: they remain resilient during a recession. ***aitik
