Europe

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Stay Occupied, My Friends

The stock market plunged 390 points yesterday. Are you surprised? I’m not, especially in light of the sentiment I’ve been sharing in my recent posts.

Our stock market is a gut reaction to what’s happening out there, and right now, that’s in Europe. The market is only as smart as the last person it talked to.

On Tuesday things were looking up because the Greek Prime Minister had agreed to resign.

However, since we weren’t sure what was going on today with fears that Europe’s sovereign debt crisis was widening, we went into a market spin. Bond yields in Italy surpassed 7%, which means that it may be getting ready to follow in the footsteps of Greece, and of course this was most upsetting for our stock market.

Again, let’s not undermine the complexity of our markets and the systems behind them, but there’s a reason that I keep pointing all of this out to you. This is what it looks like when companies go through crises. Many of them – or at least their CEOs – become as smart as the last person they talked to and the last news they heard.

Learn from the example that international markets are setting for us – and the example of our own market as it reacts to the world’s problems.

Apply this lesson to your personal life, your personal finances and your business’s finances as well. While everyone is selling and reacting and worried, do other things. Go golf or scrapbook or play Metal Gear Solid or whatever it is you crazy kids are doing these days. Get a hobby, but make sure that hobby is not overreacting to the financial situation around you.

Studies consistently show that those who do not get mired in the day to day financial swings around them – and who learn to tune out the related noise – make better longterm financial decisions, are less stressed and are more likely to make their financial goals a reality.

Why? Because they’re not as smart as the last piece of information they heard and they’re not acting on everything! If you bought and sold as fast as the market swung you’d be nothing more than strung out, stressed out and broke.

Instead of the Dos Equis, “Stay thirsty, my friends,” I encourage you to, “Stay occupied, my friends.”

What do you do to tune out the financial noise and distract you from the market’s volatility?

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We Shouldn’t Bail Out Europe – We Should Turn It Around

I’ve been writing a lot lately about Greece, which is representative of the larger problems Europe is having right now. My interest lies in the fact that an organization (in this case a country or group of countries) is spinning out of control in crisis and has little or no idea how to fix things. I think that they need a turnaround guy’s help, or at least his attitude.

I know that there are differences between companies and countries, namely, the number of factors involved. What do I mean by that?

At a company, you can quite often say, If I do x, y will occur. The reason is that there are a limited number of factors involved. I can look at the numbers on a Balance Sheet; I can comb over a P&L. I can say, if we stop spending in these places, the cash saved can pay for the following. With those payments made (generally debt and required expenses), the business can stay afloat, avoid further crisis, ultimately pay its debt down, and emerge to become profitable again. It’s not that easy and requires a lot of creativity and negotiation, but there’s rarely a case I can’t figure out.

Unlike in a country, in a private company you can sell off assets, which is a great way to generate cash you don’t have (in contrast, countries tend to just print money, which is creating an asset they don’t have and that devalues the other assets they do have). Greece, for instance, can’t sell off Thessaloniki. Well, maybe it could, but I don’t know that Romania would pay the asking price (Turkey might).

In addition, in a private company, you don’t have to worry (as much) about gauging people’s reactions. Of course you want buy-in and for the people to be on your side, but at the end of the day, whatever must be done to survive must be done. If it’s not, and the business collapses, the people are laid off and must go elsewhere. If the people in a country disagree with the decision makers, riots can ensue alongside, potentially, political mayhem and anarchy. After all, the people are assumed to comprise the country and therefore be responsible for the debt. If the government dissolves, the people are still there, the country is still there and the debt still, arguably, exists. In business, there’s bankruptcy. In governments, not so much.

As a turnaround professional, I look at all of these country-based crises, and I see the opportunity to turn them around. It would certainly be exceedingly complex and involve unpredictable elements at that level, the likes of which we don’t usually see in companies, but it’s the attitude that’s needed – an attitude that doesn’t seek to make more money out of no money, but one that embraces austerity and survival at all costs.

So without further ado, I’d like to show you a great animated video that does a delightful job summing up the European debt crisis and the proposed solutions. Watch it and tell me we don’t need a turnaround guy in there:

http://www.guardian.co.uk/business/blog/2011/oct/28/euro-debt-crisis-animated-explanation

What did you think?

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Has Emotion Joined the Greece Conspiracy

Did you read my last post on the emotional fluctuations of the stock market as a result of the financial crisis surrounding Greece? Well, the fickle and emotionally volatile market has struck again.

On Thursday morning EST, the Greek Prime Minister announced that he was shelving his controversial referendum plan. Surely his initial inclination to conduct this referendum was to make sure that the people understood – and supported the fact – that their hands would be tied by the rest of Europe if they agreed to accept the plan that had been proposed. My hunch is that the rest of Europe slapped Greece around behind the scenes a bit, and Greece backed down, realizing that the only way to save itself – and potentially the rest of Europe if it went down the toilet – was to accept the plan.

That said, the American market loved that the referendum was off and the plan was on. Once again, faith was renewed in economic recovery. Hooray.

Up and down and up and down. Multiple fluctuations between 1 and 2% day after day and week after week, all because of an emotional reaction to a situation materializing in Greece. 

Market fluctuations are normal, but can’t they reflect the actual state of the economy and business? Must they be tied to the whimsical reactions of our emotions towards the ideas of Greece’s situation? Do you hear the vagueness in that last sentence? That’s because it represents the tenuous connection between our stock market and Greece’s referendum.

Once again, I reiterate: you can’t be as smart as the last person you talked to. It’s not healthy. It’s not safe. 

Take some balancing medication.

Do not allow your plans and your feelings and your actions to oscillate dangerously every time you hear something new. Learn to process information collectively and act on its aggregate.

Our reactions to the situation in Greece and Europe are a roller coaster – and not the fun kind. They’re the kind you get on after too much funnel cake and Coke and that are a little too rickety. Have the emotional maturity to know when not to get on that roller coaster. Watch your friends and strangers get on. Keep your cool and and make wise decisions when faced with crisis all around you.

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How Greece and the Stock Market are Conspiring Against You

If you’re a news person or you follow finance then you’re no doubt already aware of the situation in Greece. That country is a mess. It’s debt is astronomical; it has no capacity to repay; the political situation is volatile at best; there are mass protests, and nobody has any idea what to do. That’s my definition of a mess.

Let’s Help or Face the Mess Ourselves

In order to prevent some kind of catastrophic ruin that affects the governments and finances of the rest of Europe – after all, Greece is on the Euro and its economy is intimately tied to the rest of the continent – European leaders have been working on some kind of deal to manage Greece’s debt (a large part of which they’ll just dismiss or fund) and get its economy back on track.

And Greece isn’t the only European country riding this roller coaster. It’s just got it the worst right now and is in the lime light. Spain, Italy and others are also going through quite a bad spot.

With the state of the world’s economic intimacy, we’re all affected by the situations around the world. Hardly a country is free from the ripple effects dealt by other members of our global union. But what’s fascinated me recently is the degree to which that intimacy is more emotional than logical.

Up and Down and Up and Down

As I’ve watched the stock market plummet and rebound over the past month, I’ve seen that movement tied disturbingly to our reactions to Greece’s economic situation.

When news came that Greece was tanking and talks were stalled, the market dropped. Last week, as news landed that Europe had reached an agreement on how to bail Greece out, the market rallied 340 points. Yesterday, the market closed down nearly 300 points. Here’s how CNN explained it:

“New fears about the fate of the European rescue plan reverberated through stock markets in the United States and around the world Tuesday. Following European markets, U.S. stocks ended sharply lower across the board. Bank stocks were hit especially hard. The bad news was propelled by Greek Prime Minister George Papandreou’s surprise announcement that he would put his country’s participation in last week’s European debt plan to a voter referendum.”

Now, I understand that the stock market is not merely a bunch of mercurial people making decisions but an enormous number of trades made on the backs of incredibly complicated financial equations and algorithms, but when it swings so violently back and forth at news about Greece, I can’t help but think that things are getting a little ridiculous. And this is just news, mind you. Nothing is actually happening in any of these instances. A deal was reached but no money moved. A referendum was proposed but no vote actually taken. These may as well be rumors for the bearings they should have!

Don’t Be As Smart As the Last Person You Talked To

This reminds me of the business leaders I’ve dealt with who change their entire course of action every time they talk to someone. As I pointed out in my 5 Foolish Faux Pas of CEOs in Crisis, some CEOs are only as smart as the last person they spoke to. That’s what our economy feels like: as though it’s only as strong or relevant as the last thing it heard.

And I don’t want you to be this way!

Making plans and sticking to them is an important part of being a good leader and developing and growing a sustainable business. It’s especially important when you’re in a crisis. You can’t be flopping all over the place in rough times. Of course you change course when things are going wrong and you actually take the time to evaluate the situation, but if you’re changing plans after every conversation your people will lose faith in you and nothing will ever get done.

How do you keep focused when things around you get topsy turvy?

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This is Dumb. Don’t Do It.

When I go into a failing business and discover a once running enterprise with an idiot at the helm, one of the first questions I ask myself is, “Is this guy family?”

Leaders have a real predilection for putting idiot family members in charge of key parts of their operations.

Napoleon installed his family members as heads of state across Europe, and monarchy for millennia have been based upon familial succession. But there’s a good reason that none of these monarchies still exists (and don’t feed me a line about the royal family of Britain or Monaco – this is just sustained wealth and fairytale fantasy): because at some point every family breeds idiots.

In the rare case that a son is as capable or more so than his father, that rarely lasts for a third or fourth generation. Sure, people can be groomed and educated, but at some point, the son will like other things, be an idiot or plain not care. And when that day comes, down goes the business.

If you want to build a business that is sustainable through the generations, don’t make your offspring a prerequisite of those generations. I’m not saying they can’t be involved, but you better make darn sure that they’re both capable and desirous of the position.

One place that problems tend to arise when fathers and sons do business together is in compensation, especially when selling the business.

I had a mechanical engineering company in New York where the son was stealing from his father’s business because he wasn’t getting a high enough salary. As a family member wouldn’t you believe that the son felt entitled to the business’s money, no matter how much or little he’d worked.

When we confronted good ol’ Charlie, who resented that upon his father’s passing his mom had been made CEO, he took a kitchen knife to his mother. We averted bloodshed and she got a restraining order, subsequently kicking him out of the company.

We were in the middle of trying to sell the company, and you better believe that this charade ruined the sale.

Do not put idiot family members in charge of your company or parts of your company. It takes a unique father and a unique CEO to balance both a family and a business. If you value your business and respect your family, think long and hard before mixing them at the leadership level.

Do you do business with your family? How does that work for you?