Planning In Volatile Times (October 2008)

There is an old saying: “When opportunity knocks, answer the door.” But in these volatile times, it is hard to know whether you are looking at an opportunity or not!? One can get whiplash just watching the stock market with prices up or down 10% in a single day. Take your eye off the ball for even a short period of time and the environment in which you are operating can be different than when you last looked.

During one of my first corporate jobs, I often wondered why the treasurer waited to make decisions. As I got to know both him and the company, I learned that it wasn’t procrastination, but keeping options open. At the time, we had some relatively straight forward financing decisions. It was common practice for us not to “pull the trigger” until the last possible moment. There was a lot of merit to that practice and over the years it added substantial value to the company. I often wonder if those decision makers still operate in the same manner or if they are more opportunistic in their actions. Today, what seems like an opportunity one moment can appear to be an expensive proposition the next.

There is always an opportunity to capitalize on short term market fluctuations. But the key is recognizing that fluctuations (in some cases, bubbles) are short term. People have short memories. In 1999 and early 2000 we thought internet stocks would increase forever (I certainly wish I had sold at the first sign of a downturn). A few years ago, many thought they should buy the biggest house possible (with the minimum down payment) because “everyone knew” housing prices would keep going up at 20% a year and was an easy way to make money. More recently, we had predictions by “the experts” that gas and oil prices would continue to soar after hitting $4.00 per gallon at the pump. After pushing nearly $150 per barrel just a few months ago, oil prices are under $70 per barrel as I write this newsletter.

The lesson to be learned here is that nothing lasts forever. It can’t. The laws of economics dictate that behaviors will change. Those who take advantage of short term market opportunities profit. Those that react to them after the fact will lose. Those that sit tight and place long term bets will likely be okay (in the long run), but it will be a roller coaster ride along the way.

With that in mind, unless your business is taking advantage of a window of opportunity, business decision making should be long term focused. It’s certainly advisable to take advantage of short term opportunities, but it’s important that they are recognized as just that. Extrapolating short term trends into the distant future is often a mistake. Don’t react. Plan.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

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