Recession, in simple terms, is a significant, widespread contraction in economic activity over a period of time.
In my adulthood, I’ve experienced three recessions: the “dot-com bust”, the Great Recession, and the COVID-19 pandemic-induced recession. Of these, the Great Recession, which spanned from December 2007 to June 2009, left an indelible mark on me.
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At its core, the Great Recession was triggered by extremely lax lending practices, which first inflated and then imploded the housing market.
Long before everything came crashing down, caution was thrown to the wind. Gone were the days of banks and mortgage brokers conducting scrupulous reviews of a person’s creditworthiness. Instead, an unrealistic and maddening optimism took hold, with the expectation that homes would continue to sell like hot cakes. This prevailing belief led to many questionable, if not downright fraudulent, lending practices, such as:
- No credit? No problem!
- Income not high enough? Leave it to us—we’ll make it just right!
Behind all the dazzle and sparkle, an impending crisis loomed large. When the music finally stopped in December 2007, the entire global economy became paralyzed.
At the time, I was managing debt collections strategy for a leading credit card company, so I witnessed firsthand how many people found themselves falling behind on bills and slipping into debt collections for the first time in their lives.
My employer was caught off guard as well, with its credit card delinquency rate rising at an alarming pace. As banks teetered on collapse and lending activities ground to a halt, we could no longer rely on our usual playbook.
Before the implosion, debt collectors often suggested that customers refinance their mortgages or take out additional home equity loans to pay off their credit card debts. Countless customers followed this advice, effectively using their properties like ATMs for quick and easy access to cash.
After the implosion, however, millions of people faced a harsh reality: they owed more on their homes than the properties were worth. Worse still, they couldn’t find any lenders willing to refinance or issue a new loan because the gravy train had screeched to a complete standstill.
To weather this financial tsunami, my employer pivoted swiftly. We rolled out a series of strategies with one overarching objective: If our customers couldn’t resolve their debts immediately, we would negotiate and even offer incentives to put them on affordable, long-term debt repayment plans.
For months on end during the Great Recession, I was anxious—both about the horrific economic situations and the uncertainty of whether my employer could survive the storm. If not, my job would be at risk, too!
Fortunately, after a prolonged period of darkness, equilibrium returned. I escaped unscathed, and three reflections from this experience have benefited me greatly in the years since:
Hypes Are Fleeting, and Bubbles Always Burst
As much as financial institutions were to blame for their reckless behaviors, millions of homeowners acted irrationally, too.
Deep down, they must have known they couldn’t afford the places they were buying—whether due to poor credit, insufficient income, living paycheck to paycheck, or already being burdened with too much debt. Whatever monster they had lurking in the shadows, they were upbeat because the housing market was sizzling. If the pundits were to be believed, the only way home values could go was up! Of course, there were experts sounding alarms of impending doom, but the general sentiment was, “There’s no way it could happen anytime soon, right?”
Wrong!
Savings Reign Supreme
Everyone knows, at least conceptually, that they should save. In practice, however, many find it difficult.
Though I always maxed out my 401(K) contributions for retirement, I was otherwise quite cavalier with my discretionary spending. It was no surprise, then, that I indulged in mindless splurging, often prompted by seeing something on social media. Too many times, I was swayed by a product or service’s aesthetic appeal and compelling storyline. Before long, I would convince myself that I had to have or experience it immediately, leading to yet another impulse buy.
In Aesop’s fable “The Ant and the Grasshopper”, the merry-making grasshopper ridicules the ant for spending beautiful summer days foraging and storing away food. “Come, sing and dance with me!” the grasshopper says. The ant shakes its head and trudges away with its loot. Soon, winter arrives, and the once-happy-go-lucky grasshopper begs the ant for food, only to be flatly refused. The moral? First, do what you need to do, then you can do what you want to do.
Will Rogers, the talented American performer, once said, “Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.” Embarrassingly, much of my spending could be chalked up to just that.
During the Great Recession, I listened to numerous call recordings to ensure our debt collectors were following our new strategies and procedures. Many of these conversations revealed the devastating consequences of reckless spending, which led me to reflect on my own haphazard financial habits. Since then, I’ve become more savvy with money. By no means do I live a minimalist life like a medieval monk; I still enjoy dining out, shopping, traveling, and entertaining—the key difference is that I now approach these activities within reason and moderation.
After all, a dollar saved is a dollar earned.
Investing Long-Term and Diversified
I have been dabbling in the stock markets for quite some time. In the early days, I bought and sold stocks—many of which I learned about from shows on channels like CNBC—in quick succession. My track record from that period was nothing worth writing home about, so I pivoted in the early 2000s.
Nowadays, I invest long-term in well-established companies across various industries. Extensive research shows that stock investments tend to deliver higher returns over extensive periods. To avoid putting all my eggs in one basket, I diversify my holdings to prevent over-indexing in a single company or sector. I also steer clear of non-traditional investment vehicles like futures, options, cryptocurrencies, and NFTs. They are too speculative and, frankly, beyond my comprehension!
Investment success hinges on the fundamental principle of “buy low, sell high.” As a value investor, I place heavy emphasis on “buy low.” That’s why, during market downturns like the Great Recession and the COVID-19 pandemic-induced recession, I invested part of my savings set aside for such occasions, acquiring quality stocks at discounted prices.
Time is a powerful ally. Knowing I’m in for the long haul, I see no need to sell and cash out just for a quick buck. This approach has served me well, and I wholeheartedly recommend it.
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Warren Buffett, the legendary investor whose net worth exceeds $140 billion, famously said, “Only when the tide goes out do you learn who has been swimming naked.”
This quote highlights that we cannot truly know whether a company is built on solid foundations or shaky ground until it faces adverse conditions. Although this sage advice is intended for investors, it is applicable to everyone.
We don’t know when the next economic downturn will occur, and job security is all but a mythical thing—like a unicorn. Instead of fretting over these uncertainties, let’s focus on how we prepare for and respond to such challenges.
Whether through prudent saving, thoughtful investing, or simply living within our means, the lessons of the past remind us that resilience isn’t about avoiding the storm; rather, it’s about being ready when it hits. By taking proactive steps today, we strengthen our financial positions and build a robust shield against any sudden changes in our circumstances. These measures help ensure that we’re never left exposed when the tide goes out.
