David asked, “Stan can you spend a few more minutes with me here on the phone?” after our joint telecon had ended with his business partner.
David and Jed had formed their company about seventeen years ago. It had grown steadily into one of the best known brands in its market, reaching revenue of $15 million annually. Then its business slid in 2007. Currently, the company is producing revenue at less than half the rate two years ago.
They have cut costs dramatically, albeit later than they should have, and renegotiated their lease. They have found lower cost suppliers. They have begged and pleaded with vendors to work with them so that they continue to receive materials and stay in business. They have gone without pay for months, jeopardizing their ability to keep their homes. David and Jed have everything they own tied up in their business, and if it goes under, neither of them will have much left. David and Jed are on the back end of middle-age, but each has a good twenty years of career ahead of them if they couldn’t retire, health permitting. Both thought they would be close to retirement by now, however.
“Sure” I said. “What do you want to talk about?”
David sighed through the phone. “Stan, I’m having a hard time staying optimistic. I’ve never had to ask my bank to wait on a mortgage payment. I’m having trouble keeping the kids fed and clothed. I don’t have any savings left and I can’t borrow from my relatives. They’re in no better shape than I am. Every day I scour the news for some indicator that this recession is turning. Do you think we’re at the bottom yet?”
“Well, I’m about as good a prognosticator as any other charlatan” I replied. “But I do have an opinion. I do think we are at the bottom now. I don’t know how long we’ll stay here, but I think the recovery of businesses will begin as soon as the real estate market shows that it has stabilized. The Treasury’s plan is the best they can do, and it makes investment sense for private funds to start coming back into the secondary mortgage market at current price levels. The “underwater” inventory of residences need to be bought up by the bargain hunters, and that’s beginning to happen.
“The next indicator is that everyone is making the adjustments and should be about done with that in the next few months. After a point, it’s not possible to cut expenses. Discretionary spending goes first. Then it’s holding off on purchases that are necessary but not imperative, such as replacing the broken vacuum cleaner or buying a new work shirt. When cars start breaking down more than they are driven, because people have not taken on the additional expense of replacing an aging vehicle for a longer period, then cars will start selling again. This happened back in 1993. Everybody had put off buying the new car so long that the old ones were just completely used up. Then people said, ‘I can’t afford it, but I have to get reliable transportation or I won’t be able to work anyway’. They started buying cars again. We’ll be close to that in another few months to a year. There are other indicators to watch as well.”
“That’s somewhat encouraging” David said. “I just hope we can hang on until the economy improves. I feel like such a failure, but I can’t let this company go down. My family is counting on me, and yet I see nothing but doom whenever I watch CNN.”
Fear was clearly gripping David at his core. Unfortunately, he’d be nuts not to be afraid to some degree. Look at the economic mess we’ve created for ourselves . But fear can’t be the motivation for action for too long without causing either dangerous risk-taking or withdrawal and isolation. Fight or flight. Fear is useful for short periods of time. When it becomes the dominant, ongoing emotion, it is debilitating.
“David” I said, “lots of people have told me they quit reading the news or watching it. It’s more fun to be optimistic, and the chances of success go up in that mindset than in constant fear. You have nothing to lose by expecting better things to happen in the future, as long as you work every day to do what you can to improve the odds.”
“It’s hard to stay positive, Stan” David lamented. “I just can’t see how our business is going to survive.”
“It may not survive” I pointed out. “But that doesn’t mean your future is bleak. I’ve known many people who have lost everything. Everything material, that is. Homes, cars, boats, retirement savings, careers, even status in the community. All gone. The ones who simply decide to start again turn out to be pretty happy fairly soon, and usually much more capable than they were before their ‘failure’. If you have your health, the love of your family and a chance for meaningful work, it doesn’t matter if you drive a 1998 Geo or a 2011 Lamborghini.
“I’ve known far too many miserable rich people with horrendous family relationships, and many poor families who have relationships to envy, to think that material wealth is correlated to a fulfilling, successful life. Money and big homes and cars don’t make you happy or unhappy, by themselves. Success is health, love and meaning.”
“That’s not the advice one usually expects from an investor” David mused. “Thanks.”