Why it is Right to Invest Now!

I was moved to write this article after a series of conversations with clients and indeed friends regarding the future prospects for us all not only in Italy and Europe but also for the World in general. Rioting in Greece then England and recently in Italy has brought many people to talk about the future and usually with a dark outlook. This article is therefore for all who wish to look at the other side of the argument.

However I do not write this article to be flippant. I am acutely aware of the pressures in the marketplace, however investing for long term growth is crucial for the health of a company and it is now that you should be doing it.
I would like to address this topic in three parts.

(1)

Many years ago I was with my father at Lord’s Tavern at Lords cricket ground in London. We had just watched England being slaughtered by the West Indies and I was supping my pint of ale with a rather depressed look upon my face. I was down, my country had lost terribly and my face clearly showed this. My father looked at me and asked why I was so glum worried of course that my ale was not at the correct temperature. When I told him why he replied saying something that I have remembered ever since. He said, “Son, worry about events that you can influence. Life is too short to worry about those things that are out of your control”. He was right. I could not affect the performance of the England team not matter how much I thought I could have done better as the coach.

The same idea is applicable to business. We have no control over the world economy. We have it seems little control over our own politicians and especially so in Europe I am afraid to say. World markets will go their own way without our intervention. If you work in a company and are not the owner or CEO, you have little effect on the overall direction of the company. So do not worry about them.

If you are the owner you can affect the overall strategy of the company. If you are a line manager you can affect the effectiveness of your group. Spend energy and precious time changing something here where you can have a positive effect, rather than concentrating on factors outside your control.
(2)
When times are difficult many companies begin a process of downsizing. They concentrate on lowering costs, cutting staff, lengthening the time they pay their suppliers and shortening the time that they are paid by their customers.
Most of these companies have to dramatically downsize because during the boom times they had borrowed too much, been too aggressive or worried about the World economy too much. Instead of expanding aggressively during the boom times it is precisely then that you should keep a very close eye of your cost base. If you do it then you are in a position of strength and so you can treat your employees well and you can plan to minimise the effect on business. If you do this during difficult times when you are forced to, then you will not be able to plan so well and you will disrupt the lives of your employees and your clients maybe causing long term damage to relations with the workforce or your clients.
Take this benign example: If you look at any bicycle race, the winner rarely makes his move on the downhill section. Going downhill, all bikes go the same speed, more or less. No the winner makes his move on the uphill section. Similarly successful business leaders make their move during recessions. And they do this by first being careful during the good times and then investing
in innovation, which is a key driver of profit growth, during recessions. If you cannot do it this cycle because you forgot to watch your costs during the boom times and are now in difficulty, then please remember it for the next cycle.
(3)
The last point is really one that comes from my old trading days. If you notice over the past 3 months when the news has become ever darker and evident to all, the financial markets have just moved sideways, they have not gone down any further. Usually when this occurs it is because the financial markets are looking through the current bad news for better times ahead.
Also do you remember reading about the King of the Markets, John Paulson, a hedge fund manager that profited greatly from the US mortgage market meltdown? At least three books have been published about him this year.
About two months ago he was forced to issue a statement to apologise for the poor performance, no terrible performance of his funds. He had been positioned for an increase in global growth, heavily long equities. Some of his funds are down 40% this year and so he dramatically reduced his long equity positions. Well again when the financial markets start to claim high profile people then it is usually the time when the markets are about to turn in the direction that had been forecast by these very same people.
For transparency purposes I purchased selected shares in some global companies recently but the above is not an official recommendation to invest in shares!
The Bottom Line
Just like during the boom times it is right to keep operating costs down, during recessions it is right to invest for the future. This is a truism of business and will surprise many of you because it is common sense. But as always it is helpful to have someone who looks at things from outside your company just to remind of the things that you already know well but may have forgotten. Couple this with the recent financial market performance means that now is the time to look to the future and worry about that which you can control. And if you cannot because you made errors during the boom times just try to remember it for the next cycle. You do this and you will be a leader.

Mark Olding

23rd October 2011

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