Economic Slowdown

RMCTalks – The Psychology Behind Economic Slowdown

Hello!

 

Welcome to RMCTalks – My Weekly Newsletter.

 

First thing first.

 

5 Interesting Stories of the Week

 

M: The secretive hedge fund of Jim Simons outperforms Warren Buffett over the past 3 decades by 16%; Facebook is one of its biggest holdings

T: The Dallol (Ethiopia) turns out to be the most unlivable place on Earth; research affirms that the existence of liquid water doesn’t necessarily mean the presence of life

W: Mc. Donald’s issues a full-page advertisement – “Stuck with Ghiya-Tori Again? Make the 1+1 Combo you love.”  to promote its new junk food; FSSAI sends a show-cause notice; says such ads are against national efforts to encourage healthy eating habits

T: Pentagon grants a $10 Billion cloud computing deal to Microsoft; Amazon files a lawsuit

F: After Whatsapp scandal, various Telegram group admins are seeking a one-time fee from equity investors to be a part of their secretive groups; allow them to know stock price-sensitive information beforehand

 

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Explained: The Psychology Behind Economic Slowdown

 

the psychology behind economic slowdown

Image Source: ET

 

Let’s Go Back to 1929: During the 1929 Great Depression, the stock market crashed like a pack of cards. Banks failed. Liquidity issues surfaced. Manufacturing activities took a halt. Consumer spending dropped to a new low. The auto sector met a terrible fate. 

 

Benjamin Roth, a lawyer, was one of the victims. While digesting the economic turmoil with a job loss, he began maintaining a personal diary. And started observing his surroundings.

 

He noted down the way the stocks crashed. The way people lost their jobs. The way they changed their spending behavior. The way malls suffered the absence of the crowd. The way real estate witnessed a fall in prices.

 

Every day, he would fill those pages with what he observed.

 

A Few Pages of His Diary Revealed: During this time, people preferred to drive their old cars a bit longer. Many delayed their new purchases and continued using public transport which disturbed automobile sales. They chose not to spend on clothes and other consumables. Which eventually affected the consumption sector. This led to falling in commercial activities that hit the logistics sector too. Together, all this resulted in more job losses. 

 

Do you observe a curve here? One thing clearly led to another. Undoubtedly, psychology was playing a huge role in this vicious circle. And led to an economic slowdown. 

 

Let’s Step Back in 2019: Something similar is happening in India too. I am not saying that we are on the brink of facing Recession or Depression. Sensex has recently surpassed 40,000 points. Thanks to a motley bunch of quality stocks. But the rough patch is visible in the economy.

 

Just have a look at the below infographic. It was shared by the economist, Vivek Kaul, in one of his articles. As per this:

 

  • 2-Wheelers sales have crashed
  • Passenger car sales have nosedived
  • Rural demand for Tractors has fallen down
  • The housing inventory has piled up as the buyers are not in a mood to buy under-construction houses
  • The railway freight revenue has contracted along with domestic air traffic
  • Tax revenues are nowhere near to the estimates

 

Why are housing loans growing fast, given that there are over 1.3 million unsold homes all across India? One explanation is that locked up homes are being sold

Image Source: Livemint

 

Altogether, I believe that the economic slowdown is evident. The psychology behind the 1929 Great Depression is working here too.

 

Disclaimer:

  • While writing this piece, I haven’t considered the relevant global factors that may or may not be involved in this slowdown. Please forgive me for my limited knowledge in this domain. 
  • Benjamin Roth’s – The Great Depression: A Diary – is an interesting read. I suggest you read it to understand how people survived those uncertain times. 

 

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Connect The Dots

 

Who is this Business Person?

 

  • Dot 1: Harvard rejected his application 10 times in a row. He was one of the 24 men who went for a job-interview in KFC. Except for him, all others were selected.
  • Dot 2: He and his friend created an unattractive website related to his country and launched it at 9:40 AM in the morning. In not more than 3 hours, he received an investment proposal from one of the investors. Realizing the potential of the Internet, he started another Internet company and made $800K within 3 years of its inception.
  • Dot 3: In 1999, Masayoshi Son of Softbank made a $20 Million investment for a 30% stake in his company. It turns out that it’s one of the most successful deals in the investment world. The stake is worth $130 Billion today.

 

Still clueless? Please scroll down for the answer 🙂

 

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Things to Avoid to Get Really Rich

 

  • Avoid debt
  • Avoid over-spending
  • Avoid investing on tips
  • Avoid timing the market
  • Avoid reacting to rumors
  • Avoid selling good companies
  • Avoid buying what you don’t know
  • Avoid behaving badly during tough times

 

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Tweet: Start Small, Start Today, Repeat Tomorrow

 

Start Small Steve Burns

 

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3 Interesting Articles I Enjoyed Reading

 

1. How I Got Rich On The Other Hand

On weekends I would earn $150 per day performing circus shows for kids, though I’d spend about $50 in bus fare to get to the gigs.

 

I was sharing a three-bedroom apartment with two other roommates in Queens, so our rent was $333 per month each.

 

I made peanut butter sandwiches for three meals a day, and at night maybe some eggs. I never ate out, and never took a taxi. My cost of living was about $1000/month, and I was earning $1800/month. I did this for two years and saved up $12,000. I was 22 years old.

 

2. How To Maximize Creativity

It’s impossible to be creative when stuck in your routine.

 

The best ideas don’t come when you’re narrowly focusing on them. When trying to be creative, there’s a temptation to “think harder.” But after a while, you’ll reach the hopeless stage, where everything will be a jumble in your mind, and you’ll lose the forest for the trees. Stuck, you may lose faith.

 

Resist the temptation to think harder.

 

Do the opposite instead.

 

Turn the challenge of creativity over to your subconscious mind. Escape the chains of judgment and quiet your internal critic. Drop the problem. Activate your emotions. Stimulate your imagination. Read poetry, listen to music, or explore the city.

 

3. Getting Started

I believe God has created us with the ability to achieve our dreams. It is up to us to dream big. Everyone is born with a spirit of courage but as we age slowly develops into a spirit of fear. The quickest path to a mediocre life is to give in to your fear of failure.

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Do not let doubt and negative thoughts creep into your head. Do you hang out with negative people?

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People that are constantly complaining about their spouse, their job, their life, etc. Don’t they just suck the life and energy right out of you? Get rid of them, let them live their mediocre lives.

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Do you ever hear really successful people complaining? No, because they are too busy doing.

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Answer to Connect The Dots: He is Jack Ma. The co-founder and former Chairman of Alibaba. With a net worth of $41 Billion, he is China’s richest man. During his early years of entrepreneurship, he began building web-pages for Chinese companies with the help of his US friends.

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While remembering his investment decision in Alibaba, Son recalls

“He had no business plan and zero revenue, maybe 35, 40 employees, but his eyes were very strong. Strong eyes, strong shining eyes. I could tell from the way he talk, the way he look at me, he had a charisma, he had a leadership”

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Amazing, isn’t it?

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That’s all for this week, friends. Have a lovely week ahead 🙂

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Cover Image: PYMNTS

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Dhruv Girdhar | RichifyMeClub

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One Comments

  • Shrey Mahendra

    December 2, 2019

    Very informative. Keep sharing such things.

    Reply

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