A manic-depressive individual is subject to big mood-swings. At a cost, drugs like Prozac may help to moderate the mood-swings.
The manic phases when people bubble with energy are wiped out along with the dark ones. As a result of being "prozac-ed", a manic-depressive who works in an intellectually demanding field may see loss of productivity.
An analogy can be made with macro-economic cycles. Booms and busts are inherent to growth. Policy prescriptions that try to moderate the pain of recessions usually lead to lower growth. The prescription does not mitigate the pain either.
Through the License Raj, India suffered from bad prescriptions. For 40 years, rigid economic planning sliced several per cent per annum off the potential growth rates. At the same time, the pain remained. Inflation was consistently double-digit. Inefficient food distribution systems caused perennial shortages and often, that translated into local famines.
Liberalisation helped accelerate the growth and reduce inflation. But it's tough to send an entire political system to "rehab" and cure addiction.
Every time a recession arrives, the knee jerk reaction from the government of the day is to hand out larger subsidies and cut off free market mechanisms by imposing price-controls. That is exactly what the government is going right now. It is liable to continue until this recession blows over.
This will not make the ongoing recession any less painful and it will retard eventual recovery. Prices have shot up due to global booms in an entire basket of commodities. Trying to hold prices in such situations just enables the black market and it does not actually reduce inflation.
Unfortunately, such policies also make it more difficult for investors to generate decent returns. You cannot generate profits by investing in the high-rise areas because controls cap the potential upside. At the same time, you continue to suffer the deleterious effects of inflation.
The energy industry provides a classic example. ONGC would have been diagnosed as a "buy" the moment the Iraq invasion occurred.
But the subsidy mechanism has successfully crippled downstream refining and marketing PSUs while preventing India's major primary producer benefiting from tripling in crude and gas prices. The story has been similar in cement and, to a lesser extent, in steel.
The only thing a long-term investor can do is to patiently hold on and wait for the recession to end. When it comes to stock-holdings, large sell offs during bear markets are illogical. If your original buys were reasonably priced, you will end up booking unnecessary losses at temporarily depressed rates.
However, it is difficult to answer whether you need to tweak financial asset-allocations during recessions. Debt instruments suffer during high-inflation periods. So does equity. The classic financial planning wisdom is to ignore cycles. This can make you look silly if the dip is either for a longer period or drastic.
There cannot be a
