In a recession, the video argues, the winners hold cash, avoid expensive debt, think with the head instead of the heart and then make one or two big, well-timed moves while everyone else is scrambling. Recessions are periods when the velocity of money drops. Money changes hands more slowly, people hoard cash, businesses stop investing, jobs disappear and the spiral feeds itself. The economy, as the video puts it, becomes a game of musical chairs where the chairs are money.
Not everyone loses, though. Below are the 15 rules the video says wealthy people lean on when the music stops, plus a bonus about your network and a warning about the current economy.
Watch the full video here, or skip to the breakdown below.
The 15 recession rules at a glance
- Sit on available cash (1:07)
- No high-interest debt but keep the low-interest (2:01)
- The strong will eat the weak for pennies on the dollar to consolidate power (3:29)
- Brain over heart (5:15)
- Do what the rich do and don’t look back (6:14)
- You will make 1 or 2 decisive moves (8:36)
- Be prepared to buy in bulk (10:10)
- DCA is the name of the game (11:36)
- The dip will keep on dipping (12:47)
- Fortune and wealth are built in recessions (14:12)
- Don’t increase prices and don’t buy dumb things (16:29)
- Time to get thrifty (17:52)
- Rebalance your portfolio (18:36)
- Unrealized loss isn’t really a loss (19:31)
- Solidify your income or you’ll drown (20:34)
- Bonus: This is the real test for your network
1. Sit on available cash
Cash becomes scarce in a downturn, and being illiquid at the wrong moment can cost you your financial security. Nobody likes watching cash lose a couple of percentage points a year to inflation, until the market drops 40 percent.
The wealthy accept that small leak because they will be the only ones able to buy anything when prices fall. If you sit in the middle, the advice is to postpone big spending decisions and play chess while others play checkers.
2. No high-interest debt but keep the low-interest
When things are uncertain, capital gets more valuable and borrowing gets expensive. Carrying high-interest debt through a recession is like swimming with weights.
Recessions are also a good time to renegotiate debts and contracts, because lenders fear never being repaid and offer softer terms. The same logic works in reverse: whoever lends becomes the stronger party.
- Debt deals carry tax advantages, since debt is a write-off
- Debt gives investors a simpler exit than equity, which can go to zero
- Convertible debt lets an investor be repaid or convert into equity once the economy recovers
3. The strong will eat the weak for pennies on the dollar to consolidate power
Recessions clear out businesses with weak economics. Those companies either lose everything or sell cheaply to bigger players who can outlast the winter, and that is how power ends up in fewer hands.
The video points to several signs of it: more mergers among large corporations, higher closure rates for small businesses (over 200,000 small businesses shut down after 2008), and growing market share for dominant players. Amazon’s revenues rose 38 percent in the first year of Covid. Big firms also get privileged access to financing and absorb the talent that smaller firms can no longer pay.
When growth returns, the winners keep the assets and share they picked up. Even if you are not a big player yet, that list shows where the opportunities sit.
4. Brain over heart
Rationality keeps you alive in a downturn. The right call is the right call even when it does not feel right, and instincts are a nice extra but numbers do not lie.
If cutting 20 percent of your staff keeps the ship afloat, the video says you get the scissors. Emotional decisions feel good in the moment but sink the whole ship. A data-driven choice that serves the long-term vision also stresses you less, because you know it was the objective call.
5. Do what the rich do and don’t look back
The advice here is to hedge your bets, make your plays and then sit back. Since 2021, the video says, investors have lost trillions in volatile markets, and JPMorgan was quoted as expecting 99 percent of Americans to be worse off than before the pandemic by the end of the year.
The wealthy learned to use alternative asset classes as hedges and to put part of their wealth into recession-proof industries. They wait it out. The video adds that 2023 was the first year more new billionaires got their wealth through inheritance than through their own entrepreneurship.
6. You will make 1 or 2 decisive moves
Patience is the skill most people lack. Warren Buffett sat on the sidelines for eight years while financial media ridiculed him for going soft. When the pandemic hit and prices bottomed, Berkshire Hathaway was holding 150 billion dollars in cash and started buying great companies at big discounts.
Learn to wait, stay in the market you understand and do not chase things you cannot explain. Do not buy a studio apartment, a little stock, a vending machine business and some crypto, because that spreads you thin over things you cannot control. One good play during the three to four years of a recession, the video says, will beat everyone else.
7. Be prepared to buy in bulk
If you know what you are doing, you do not need to diversify. You need volume on what is clearly a win. When the opportunity shows up, go all in, because it may not come again.
Larger volume buys a better deal, and the best time to negotiate is when everything looks grim. Instead of one apartment at a 20 percent discount, the video suggests the whole building at 45 percent. People who sell in a recession usually do it out of immediate need, while the rich can wait, so time, cash and a fast close are valuable.
Stay opportunistic but cautious. Do your due diligence, because there are people looking to take advantage of dumb money.
8. DCA is the name of the game
DCA means dollar cost averaging: buying regularly without caring what the market is doing. Alux says this approach outperforms professionals who try to time the market.
The common middle-class mistake is treating investing as a one-time event. It is a continuous process that speeds up in a recession, when the rich double down. Buying more as prices fall lowers your average cost. Someone who bought Bitcoin at 50k, watched it fall to 17k and bought more has already made 2.5 times that investment, while the one who stopped buying has to wait longer to see a profit.
The same logic applies to the S&P 500 and anything with long-term value.
9. The dip will keep on dipping
If your thesis still holds and your horizon is long, a falling price is a discount. As long as you do not bet the farm on the short term, you will probably be fine, but it takes self-control. Do not panic sell.
Newbies make long-term decisions from whatever the news says that day. The team goes further and claims the news is one way the rich steer retail investors out of their holdings. Treat every dip as a separate investment with its own timeline: some pay off in weeks, others in months or years.
Do not sell now to buy lower next week. Treat the account like a piggy bank where money goes in and stays in unless you have no other option.
10. Fortune and wealth are built in recessions
The central claim of the video is that you do not have to score every day, only when it matters. It points to the US economy after each recession: roughly one every ten years, an average length of about 10 months, then around 69 months of growth with returns of usually 25 to 50 percent.
The plan that follows is simple: when a recession starts, buy the S&P 500 every month for the 10 months it will likely last. A single recession where you are an active player can move you up the wealth ladder, and that the rich are taught this by someone richer who has seen the graph.
They have seen the chart you haven’t, so they are ready when the numbers go red.
11. Don’t increase prices and don’t buy dumb things
Everything costs more and the average person has less to spend, and a recession turns that up another notch. Raising your prices tends to lose more customers than the extra income is worth.
The narrator gives an example from a portfolio company in fashion e-commerce that pushed prices up during the pandemic, hoping its fan base would absorb it. It backfired, took 24 months to learn from and ended with a return to the old price and a hunt for lower production costs instead.
On the personal side, skip the new car, the fancy clothes and the exotic holidays. Put the money into income-generating assets that will pay for those things after the recession.
12. Time to get thrifty
The biggest companies to come out of the 2008 recession were price-sensitive ones. Airbnb was cheaper than a hotel, Uber used to be cheaper than a cab, and Netflix hit its inflection point.
Your business should go into thrift mode too: sharpen the old pencils instead of buying new ones, skip aesthetic upgrades and keep the laptops and cars your employees already have. When you do spend, judge it by lifetime value. If the purchase will not last a lifetime, the rule says do not make it.
13. Rebalance your portfolio
Not every sector gets hit equally in a recession. If your tech holdings are booming while travel stocks are down, move some money from one to the other.
Alux builds its idea of balance on what it calls the expertise ratio. Organize your wealth according to your knowledge and experience, so that if you know real estate and stocks at a 70/30 split, your money follows that split. Once a year, check whether you have drifted and add to the underinvested side until the balance is restored.
14. Unrealized loss isn’t really a loss
The first recession is tough, especially if you bought during market exuberance. The team asks you to remember that it is not a loss unless you exit the position at a loss.
The reverse is true as well. If your app shows 20 percent returns this month, that does not mean you should buy bottle service before you have actually sold. A logarithmic chart of the S&P 500 over 60 years shows that waiting long enough brings your money back and then some.
That is why, as the video quotes, the smartest people on Wall Street say time in the market beats timing the market.
15. Solidify your income or you’ll drown
The closest thing to a holy grail, according to the video, is your ability to monetize your skills. For an employee that means how good you are at your job and how much demand there is for your skill set. For an owner or investor it means how well you manage the resources you built.
You cannot outlast a recession on savings, because that money is for opportunities. Monitor cash flow religiously and aim for predictability: no matter what the market does, you should be able to expect next month to bring in what this month did. A stable income gives you a solid number to base decisions on and lets you outperform people watching from the sidelines.
Bonus: This is the real test for your network
Recessions show you who your real friends are, and they are also a good time to build lasting relationships. If you can help someone who will matter to your long-term plans, you get access and sway at a much lower price than at almost any other time.
The narrator suggests playing the long game and looking after your family’s long-term interests.
Where the video thinks we stand
The creators say they believe we are in a recession now, citing layoffs, yet company earnings calls look strong. Their explanation is that governments in a big election year may be flattering the numbers to win re-election. They tell a story of two economists who each pay the other 100 dollars to eat something unpleasant and conclude the forest’s GDP rose by 200 dollars.
The takeaway they leave you with is to prepare now: hold cash, learn the rules above and be ready to act when the chance arrives.
FAQ
What should you do with your money during a recession?
Alux recommends holding available cash, avoiding high-interest debt and buying regularly through dollar cost averaging. It also says to make one or two decisive moves on assets you understand rather than spreading yourself thin.
What is dollar cost averaging in a recession?
It means buying at regular intervals without trying to time the market. As prices fall, you buy more for the same money, which lowers your average cost per investment.
How long does a recession usually last?
The average recession lasts about 10 months. It adds that about 69 months of growth tend to follow, with returns usually between 25 and 50 percent.
Should you raise prices during a recession?
No. In its example, a fashion e-commerce company raised prices during the pandemic, lost customers and took 24 months to return to the old price and cut production costs instead.
Is an unrealized loss a real loss?
According to the video, no. It only becomes a loss when you exit the position at a lower price, which is why it urges patience and cites the idea that time in the market beats timing the market.
Keep reading
- New Money & Old Money: 15 Differences
- Stupid Simple Money Rules
- 15 Investments That Are Recession Proof
