Three weeks ago, Fool writer David Stevenson argued that Britain might be heading for recession.
We've since had Northern Rock, gyrating stockmarkets, and still more gloomy economic news. Even if recession is materially no nearer -- as the optimists insist -- the prospect of a downturn certainly hasn't receded.
In early September, based on my experiences living and working through three recessions (1980-82, 1990-91, and 2001-2002), I wrote about ways to recession-proof your finances. The basic message? Cut back a little on expenditure, get out of debt, do what you can to boost your income, and build an emergency fund.
Today, I'm going to look at ways to profit from recession. By living a little more frugally, and building up savings, you're certainly helping to buffer your finances in the event of a loss of income -- but you're also building up a cushion of cash that can help you take advantage of the bargains that an economic bust puts your way. In other words, when people -- or businesses -- are desperate to sell, and buyers are scarce, you'll be the one with cash available, and be in a position to drive a hard bargain.
So what might you be able to buy on the cheap?
1. `Big ticket' household purchases
New cars, new kitchens and bathrooms -- as the stream of buyers dries up, the sellers of such discretionary purchases are among the first to slash prices and offer 0% financing deals. So if you're looking for a new car or kitchen, and are willing to wait a while, the savings could be significant.
Better still, if you're willing to be flexible in terms of styles, colours or designs, the savings can be even greater, as manufacturers struggle to get rid of difficult-to-shift inventory. I hadn't especially wanted a blue-coloured Ford Escort back in 1990, but the price was unbelievable -- and seventeen years on, we're still using it!
In a recession, shares become cheaper -- some because they're in sectors especially badly hit by the downturn, others because of a more general abundance of sellers and a shortage of buyers. If you're prepared to take the long view, it's possible to pick up stakes in good solid businesses at mouth-watering price-earnings ratios. If the downturn occurs, expect the Fools on our value shares discussion board to be among the first to spot potential investment opportunities.
And if shares in individual companies don't appeal, index trackers often become just as attractive. In early 2003, as the last stockmarket downturn bottomed out, I was throwing every spare pound I could at my FTSE All Share tracker. Earlier this summer, I was sitting on almost 100% profit -- and that's before taking dividends into account.
In a full-blown recession, properties are repossessed, sellers who are desperate to move take almost any offer they can get, and prices plummet. A friend of mine who bought a flat during the 1990/91 recession at precisely the wrong time took years to get out of negative equity.
While I only visit the Fool's Property Markets & Trends discussion board occasionally (we've been in our existing house nearly twenty years, and have no plans to move), it's clear that one more than one Fool has profited by buying-up houses on the cheap. Like most other places in the U.K., our local market town has been experiencing a house price boom in recent years -- but I remember when the local paper's property pages were full of repossessions, listed for a quick sale at very attractive prices.
4. Skilled trades
Just as the sales of new cars, kitchen and the like dry up in a recession, people put on hold plans to renovate or extend their properties. Builders and allied trades such as carpenters and plumbers become short of work, and the prices of building materials fall too. In short, if you've got the dosh and have some building work in mind, a recession can be a very good time to get a good deal.
It's not `taking advantage' -- it's offering work at a time when there might not be much around, to people who are very glad to get it. These words are being typed in the attic office in which I work: we hadn't intended to complete the job so quickly, all those years ago, but the price on offer was just too good to resist. (The builder in question is now a family friend, and his wife is a Fool! Hi, Sue!)
5. Travel and tourism
Airlines, hotels and similar travel-related businesses share two common characteristics: charging what the market will bear, and capacity that comes in big, awkward lumps. You can't make an aircraft shorter just because fewer people want seats, and you can't remove a floor of a hotel because fewer people want to stay there. What you can do -- which is what the operators of such businesses do in fact do -- is to drop prices to get whatever revenues they can to help defray the very fixed costs that they face.
In short, a recession -- if you've got the cash -- is a very good time for a long-haul holiday or similar otherwise hard-to-afford travel. Better still, you don't always have to part with hard cash. We're keen savers of Air Miles and frequent flier programmes, and have previously taken advantage of downturns to visit San Francisco, Toronto and Boston -- all courtesy of mouth-watering redemption deals.