Recession opportunities

There’s a question on Hacker News about what people were doing to profit from the current/upcoming recession in 2022.

I responded about the investments I made earlier in the year. Below is the response in full, plus answers to a couple of follow-up questions I received.

During the last recession (GFC), I did well with real estate. Every $100k invested has grown 3-4X, but more importantly continues to return ~1.5% to 2% monthly in rent, plus offers significant depreciation expense at tax time. I doubt those conditions will happen again in my lifetime — I was lucky with timing.

This recession I bought a significant portion of select ‘pandemic stocks’ I thought have good fundamentals (or at least better than their price suggested) after they dropped 70-90% earlier this year (I was already all in cash anticipating a recession). My hope is in ~3 years that investment will 3X when the market recovers.

I wish I had better ideas on the next opportunity this recession, but by definition they will always be contrarian. My next big bet will likely be on myself with a startup, which I haven’t done in a decade.

Which recession stocks did you pick?

  • Affirm
  • Coinbase
  • Cloudflare
  • Netflix
  • Peloton
  • Roblox
  • Shopify
  • Snapchat
  • Snowflake
  • Unity

Peloton is the only one I regret so far — seems to be a falling knife I tried to catch, but I still have some hope they can offload the inventory, grow distribution through Amazon/retail and drive up subscription revenue. But seems increasingly unlikely.

These are all closely correlated as tech stocks. Isn’t it similar to a Nasdaq index fund?

Not exactly. They are all tech stocks, but NASDAQ has large cap tech stocks, which ‘only’ saw a ~30% drop YTD in the index.

The ones I invested in were growth stocks that saw particularly steep corrections of around 70-90% when I invested.

My bet was that though they were overvalued, it was an overreaction that would on average get me a ~3X return in 3 years.

So yes, they are similar, but IMO the similarity was an overreaction that was not based on fundamentals. As mentioned earlier, I’d make the same bet again now for all but Peloton.

Keep in mind these are longer-term (3+ year) investments. If you watch the market, the wild swings (especially in these stocks) still tell us the market doesn’t know how to value them.

Back to the OP’s question, to get any significant outsized return you often have to be contrarian AND right. I felt I knew enough about the fundamentals of these companies and the market that I had enough confidence to make the bet. Only time will tell.

UPDATE: See follow-ups to this post:

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