Finding something useful amongst all the media hysteria
By Christopher J Tipler
Media commentary on the global and Australian economies has reached a frenzy of paranoia. We are treated to endless commentary on what might happen to us, when and for how long. It is almost universally bad, or very bad. Europe is going to collapse, precipitating another GFC. The Chinese juggernaut is slowing. The US economy will double-dip. The mining boom will falter. Our banks are not safe after all. And so on, in Technicolor, with bells.
It seems there is nothing left for us to do but go on deck and sing ‘nearer my God to thee’.
If you are a business manager, however, this is not necessary or appropriate for a simple reason that should be obvious. Business leaders and their advisers must exercise professional discipline over what information they allow into their decision-making system. This information must be relevant to the business. To be relevant, all information must be able to pass the ‘so what?’ test. We ask ‘what is interesting or useful about this fact, this comment, this idea; how is it relevant to the decisions we need to make?’
Media speculation about possible economic outcomes does not answer the ‘so what?’ question. It’s just noise. Read it, or listen to it, if you want to be entertained, or if you want to wind yourself up, but don’t make the mistake of thinking it has much relevance to your business.
An example will illustrate the point. Suppose someone says ‘Germany may not be able to prevent the collapse of the European Monetary Union’. So what? In what way is this statement interesting? First it is purely speculation – it may or may not be true (no-one knows what is going to happen). Second, even if it turns out to be true, how is it relevant to your business? The statement may acquire some relevance if it is greatly extended to consider possible commercial implications, but even these will only be possibilities, or at best probabilities.
The cold reality is that 90% of the media coverage of the global economy is irrelevant to business. It does not answer the ‘so what?’ question. If you are not entirely convinced you might also consider that effective planning does not depend on forecasts of external variables, or scenarios. It depends on creating effective intent by working with variables that the business can control.
Like Ulysses, capable managers understand this and don’t allow themselves to be lured onto the rocks of distraction by the media sirens; they stay focussed and maintain their course. It is this focus, this deep understanding of the moneymaking process, that separates the business adults from the children, the professionals from the amateurs.
The challenge for business planners is to distil from all the noise some insights that can help in the formulation of powerful ideas, for it is these ideas that create the foundations for a great business. This is hard work requiring an ability to analyse, discard, synthesise and make relevant. It is not SWOT but SOWOT.
So, with your old black hat on I suggest you say to your planner ‘don’t just regurgitate noise. Tell me something really interesting about the world that I can use to create effective intent in our business. And if you can’t do that, it would be best if you remain silent (until I find someone to replace you)’.
Let us now consider whether the same conclusions apply to investors; is all the media commentary relevant to your decisions? Even here, the answer is ‘probably not’, but for different reasons.
Economic conditions are relevant to decisions about asset allocation and market timing. If you are a long-term investor interested in growth you would probably look through all the current turmoil and conclude that well managed companies positioned to ride the Asian super-cycle are good value, or becoming so. For you, short and medium term economic gyrations are probably not particularly interesting unless you want to try to second-guess the market and time your entry. Good luck.
If your investment horizon is shorter, perhaps because you are closer to the time when you must draw on your savings, then current market risk is probably unacceptable. Why would you expose yourself to the chance of significant capital erosion due to forces completely beyond your control when you can earn 5%, or more, on a secure bank deposit? Again, all the possible short and medium term economic forecasts, ranging from bad to appalling, seem to have limited relevance.
In saying this, I should stress that I am not an investment adviser, so you will need to seek advice and make your own mind up.
If you, or your adviser, accept the logic outlined above, you can make the necessary adjustments to your management or investment strategies. Then sit back and enjoy all the economic commentary in the same way that you would enjoy a Wilbur Smith novel – it is a bit of fun, but not to be taken too seriously.
Christopher Tipler is a Melbourne-based management advisor and author of Corpus RIOS – The how and what of business strategy. His web site corpusrios.com contains more material on this and related topics.