It’s been months, but one of the biggest words from 2022 is still in the air: recession.
Are we headed into a recession?
Are we currently in a recession?
Are we already recovering from a brief, sort-of recession?
Depending on how you want to answer, any of these might be true. The definitions vary, so the answers do too.
The most common definition is based on multiple quarters of falling gross domestic product—the sum of all national economic activity. With GDP numbers declining slightly throughout the first half of the year, we technically found ourselves in a recession.
But the next important figure economists look at to determine recessions is unemployment, which remains near 50-year average lows. So by that measure, the economy is still sizzling!
Through the lens of the stock market, we again find conflicting answers. For most of the statements investors received in 2022, many holdings were down. But at the same time, many of those companies were reporting record earnings. According to stock prices, we are in a recession; according to stock earnings, we are still in a growth cycle.
So how can investors make informed decisions, when even economists struggle to agree on the nature of a recession?
Here, we believe taking the long view is instructive: we cannot say with full certainty whether we are currently in a recession, nor whether we will be in a recession a month or two from now. But we can know with absolute certainty that there will be recessions in the future—which also means that recoveries are still on the horizon, too. Night, day. Recession, recovery.
We know that the economy is cyclical. It has its upturns and downturns. But if you are investing for the decades ahead—maybe your future retirement or for a legacy for your children and through generations—your concern should not be on what the economy is doing today, next quarter, or even next year.
Your focus should be on trying to grow the bucket the best we can for the long haul.
We don’t ignore the day-to-day action, of course. But in good times and bad, we allow ourselves to be guided by simple, timeless principles. We focus on avoiding market stampedes and looking for the best bargains we can find. And these principles, we believe, are equally important whether we are in the depths of recession or a roaring expansion.
The talking heads can keep on debating whether we are in a “real” recession or not. That is what they are paid to do, after all. Meanwhile, we are going to keep on doing what we are paid to do: trying to grow the bucket, find opportunities, tweak portfolios.
Feel free to drop in or give us a call if you’d like to talk about this, or anything else.
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