Did you see the programme on television the other day about the first ascent of Everest?
It was in 1953, less than a lifetime ago, just 6 years before I was born, but a world away in terms of the technology.
You see I’ve got the climb leader, John Hunt’s book ‘The Ascent of Everest’, of 1954… and in it he proudly talks about the equipment that helped them get to the top…all pretty basic by today’s standards.
Some of you will know this, most won’t, but I travel the world going up pointy things. My kit is far, far better, far more technically advanced than theirs was in 1953. There’s no comparison. But does that eliminate risk or just provide false comfort?
A few weeks ago there was a massive upheaval in the forex markets. The events surrounding the removal of the Swiss Franc/Euro peg, and indeed the more recent Greek election, might just tell us a lot about risk management techniques and the human psyche, if we allow them to.
Few anticipated at the right time the Swiss central bank breaking the peg and as a consequence a good many – from small currency speculators to big banks – lost a shed load of money in a matter of minutes. Over a billion dollars was lost – yet everyone thought their risk management procedures were robust.
The reality is the technology didn’t work, people expected it to, but when it was needed, it failed. My view is the Swiss forex losses happened as a result of sloppiness – people chose not to spend any of their time going back to the basics – they were fixated on the profits they’d continue making as long as it didn’t happen and placed far too much reliance on the technology to protect them. They relied on the stuff the computers and mathematicians churned out. Others thought a process, of placing stop-losses, made their trades risk free.
You see people don’t change, people are inherently idle if given the choice – for example the 1920s/30s recession happened for similar reasons – the pursuit of get rich quick schemes – people get complacent, they get used to the status quo, they fail to identify and test their key assumptions because it involve doing some work. People also chose to rely on, or at least hope for, someone helping them out – in this case the Swiss central bank as it’s almost become custom for central banks to help prepare the markets in order to eliminate shocks.
There are two points… Firstly people assume – even though Assume makes an Ass out of U and Me – and because of that they ramped up their leverage, massively and ignorantly increasing their exposure. Secondly – and this is confirmed in the book ‘Manias, Panics and Crashes’ – a book I know is being read by several government ministers – people overestimate just how clever they and their systems are: that somehow this time around they won’t suffer the same disasters their predecessors did: that somehow thus time they’ve cracked it. Technology creep is a dangerous thing.
Shall I tell you what I do in the hills?
I use a combination of the old and the new. I use simple manual techniques like a map and compass, pacing, I make sure I know exactly where I am and anticipate what’s likely next, I keep a GPS close at hand to check things out if I’m uncertain, I have a full safety kit that can cope with almost any eventuality should things go horribly wrong, I keep things simple if I can – I avoid complicated systems. And I’ve practised a lot. The point is it takes hard work to stay in control and for me technology is a tool, not a crutch.
Here are a few questions for you…
What are you or your client assuming which, if it gets turned upside down, could have a major impact on the business? Is that really a Black Swan event or is it common sense that it’s got to happen at some time?
Which of your clients are thinking they’re too clever to be caught out, that their systems and procedures are bombproof?
Turning now to the Greeks…
The thing that has amazed me in the Greek crisis is just how far problems can be pushed down the road before people say enough is enough and do something about it.
To me, voting in a party that is against austerity when the country is in a neverending downward spiral was always going to happen, it was just a question of when. So what’s been going on in the minds of the Greeks that delayed the inevitable?
Fear? Pride? Denial? Uncertainty? Idleness? Lack of drive? Que sera, sera? Absence of commitment? No resilience? Unwillingness to rock the boat? Desire for an easy, uncomplicated life? Uncertainty of getting any outside support? Clinical depression? No animal spirits? Habit over change? – These are the typical things that get in the way of all major actions.
I find that many of these things are going on in the businesses I meet in an insolvency situation. But there is always a tipping point that prompts action – and that is typically when the situation has become so desperate there’s nothing else left to do. In fact it’s not unusual for a major crisis point to have been hit 12, 18 months previously, the person has been living somewhere pretty uncomfortable for a good while until that last straw broke the camel’s back.
The reality is most people will put up with a pretty uncomfortable present rather than choose an uncertain future. They need to be standing on a burning bridge with fire all around them before they’ll jump.
Let me ask you a question …
Is it our job as trusted advisers to create a burning bridge for a client if we believe it’s in their long term interest to do so, even if they don’t quite recognise it at time?
Or should we just hang on in there, support them through each minor crisis, until the client builds the bridge themselves and then support them?
And then another…
With Europe on the brink, debt at unprecedented levels, interest rates only able to go one way, many of the tools in the armoury of the central banks played out, and international tensions high, should you and your client be doing more now to plan for that Black Swan event?
Anyway that’s me for this month…
T: 01902 672323
What else have I been getting up to?…
… Some interesting, large, members voluntary liquidations… I really appreciate advisers and their clients putting their trust in me for such assignments! They are certainly not run of the mill!
… Some interesting advisory work – not everyone is doing well right now – and it’s perhaps surprising what options small business owners have that my competitors habitually miss!
Oh… and booking up to climb the biggest mountains in Poland and Africa in coming months!