1. Purging Prosperity
Cycles seem to be a natural part of our world. We experience a dramatic light
shift twice every single day, and our calendar year cycles through four distinct seasons
over and over again. These changes are so constant that we often fail to notice them. In
the dead of winter, I rarely find myself losing sleep over whether the trees and flowers
will ever blossom again. In fact, I don’t question the changing seasons and the regular
shift from night to day. Experience has taught me that nights and winters inevitably give
way to springs and sunrises.
Our market economy has tended, like seasons, to be cyclical. The economy has
cycled with almost the same regularity as the seasons; however, many of us refuse to
recognize this cyclical regularity in spite of past experience. Every major economic bust,
just like every boom, has always ended.
In spite of past economic recoveries following every financial panic, many are
quick to conclude that this or the next economic downturn will be the one that has no end.
The doomsday oracles of the past have been pestered by the inconvenience of the
economic and investment cycles. Many of us are in desperate need of a major financial
paradigm shift. We need to begin to view economic contraction and expansion as part of
a healthy market economy as opposed to financial Armageddon.
This paradigm shift will open our eyes to creative and inspired ways to not only
survive the winters of recessions, but even thrive in them.
Many economists view recessions as a necessary and important self-correcting
mechanism in our economy. As Bloomberg Businessweek staff writer Drake Bennett
noted, “Recessions help to right economies that have lost touch with reality.”1 In other
words, recessions purge the economy of excess and bring it back to reality.
The housing crisis of 2009 is a prime example of a recession’s ability to restore
the equilibrium within an economic system. In a market economy supply and demand
dictate price and production. As the housing bubble formed the prices and production of
homes in many places in the United States became bloated as they drifted away from the
reality of demand. The recession corrected the unwarranted price inflation.
Historically markets have expanded and contracted with long-term efficiency.
This model encourages prudent investors to not over-react to the emotions of doomsday
prophecies nor to succumb to the inevitable investing euphoria of what the then Federal
Reserve Board chairman, Alan Greenspan, called “irrational exuberance.”
Traditionally—due to eventual economic recoveries and rejuvenation—the best time to
invest has been when the economy was limping. During an economic downturn the prices
of stocks drop dramatically; however, precipitous drops in the past have always been
followed by upswings. Take, for example, the most dramatic downturn of the past
decade, the Great Recession. The Standard and Poor’s index dropped dramatically to a
low of 676.5 points; this drop, however, was followed by the dramatic, resilient recovery
over the past several years leading to the current point valuation at 2,104.28.2 If the
1 Drake Bennett, “The Good Recession,” The Boston Globe,
http://www.boston.com/bostonglobe/ideas/articles/2008/03/23/the_good_recession/?page=full.
2 http://economy.money.cnn.com/2013/06/04/recession-ended-4-years-ago/;
http://money.cnn.com/data/markets/sandp/

2. historical model of ups and downs holds true, investing during a recession is far from
foolish. It’s actually prudent. Buy low, and sell high.
Recessions also present various unique and creative ways to improve the quality
of life. It can be hard medicine, but if you lose the job you’ve always hated, maybe you
should look into a more fulfilling option. Go back to school or start trying to do
something you enjoy to pay the bills. Like the old idiom goes: when life gives you
lemons, make lemonade.
Research has also shown, rather counterintuitively, that overall health improves
during a recession. As people work less and have less expendable income they have more
time to spend away from the desk and at the gym. People also tend to purchase fewer
cigarettes.3
The most important thing to realize about recessions is that all past indicators
suggest that they end. They always have, which suggests that they will in the future as
well. Billionaire, investment guru Warren Buffet lauded the “regenerative capacity of –
American capitalism” when interviewed during the Great Recession, suggesting that hard
times are temporary. American capitalism has proven to be resilient time and time again
throughout our nation’s history. If the past has any relevance for indicating future trends,
it would be childish to avoid investing in well allocated and diversified accounts simply
because we are afraid that the next financial winter will turn into an indefinite ice age.
Chances are, you’ll be just fine.
3 Christopher Ruhm, Health Living in Hard Times, 2003.