Wild Times in Markets
But the profit over that period , which began when markets reached their nadir in March, was not enough to offset the losses recorded in the previous six months. Not since 1932 had the market suffered a half-year period as bad as that one.
Sponsors clearly found it difficult to resolve whether the Great Recession would turn into Great Depression II.
Amazingly, however , the American stock market was one of the least inconstant markets in the world in the last year. It was among the best stocks when it was plunging, and among the worst when it was increasing . Over all, it ranked near the bottom among international markets.
Whatever else you might want to say about the goodness of international diversification, in this cycle it has done little to balance the risks of investing in any one market. When the markets went down , they nearly all went down. When the markets increased , they soared together.
If history is a leader , the strong upturn may be an indication that better costs are still ahead. Since World War II, there have been eight periods before the constant market when the S.& P. 500 managed to rise at least 30 percent over a half-year period — in 1963, 1971, 1975, 1980, 1982-83, 1991, 1997 and 1999. A year later, the index had made further gains in seven of them.
The exclusion was 1980, when the economy went into a double-dip decline and dashed the believes of sponsors who had bet on a continued rise in stock costs .
Before that, the record was less impressive. Increasing costs in 1929 presaged the Great Depression, and a keen rebound in 1930 proved to be a suckers’ rally. But big gains in 1932-33 and 1935 were followed by additional profits . Costs were little changed a year after large gains in 1938 and 1943.
The accompanying graphic demonstrates the truth of an old proverb : If you lose 50 percent of your money, and then profit 50 percent, you have not come close to breaking even.
Italy offers one of the best examples of that. Over the six-month time ending on Wednesday, the FTSE/MIB index of Italian stocks rose 81 percent in euros. With the euro also strong against the dollar during that period , the Italian index more than doubled, rising 109 percent from the perspective of a dollar-based sponsor .
But an investor who put money in the Italian stock market exactly one year before, on Sept. 9, 2008, suffered a decrease of 55 percent in euros, or 60 percent in dollars, during the next six months. The Italian market, like the American market, hit break on March 9 of this year.
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In times of disorder , opportunities abound. All managers must do is keep their companies afloat, their eyes peeled for openings, and their bearings—as the old rights wash away
What do Carnegie Steel and Hewlett-Packard (HPQ) have in general ? Both were born at a time when people thought the world was breaking down . Andrew Carnegie hurled his first steel mill during the Panic of 1873, the start of a long prices to build an industrial construction that made him the world’s richest man. Bill Hewlett and Dave Packard showed same backbone when they launched HP from a Palo Alto (Calif.) garage toward the end of the Great Depression.
History has shown that turning point breeds opportunity. Business leaders may have to cut prices to survive 2009, but the smart ones are also out there looking for chances . They are willing to take the type of bold process that IBM (IBM) made during the recessionary days of 1981 when CEO John R. Opel aggressively became flatter the company’s landmark personal computer just as PC demand soared. Even in the current downturn, there are companies like AT&T (T), which recently announced plans to buy two companies for a total of $1.2 billion.
Chiefs are now concerning with everything from shattered consumer confidence to tighter credit, not to note the likelihood of a tougher regulatory environment. Conclusions that made sense two years ago may assure disastrous in this climate—from giving outsize rewards to those who take big risks to borrowing heavily just because interest rates are low. Years of excessive credit have taken a toll: An unprecedented two-thirds of nonfinancial American firms covered by Standard & Poor’s have speculative-grade, or junk-rated, debt. (S&P, like BusinessWeek , is a unit of The McGraw-Hill Companies (MHP).) On the whole , U.S. businesses face a $238 billion wave of debt maturities that will come due by the end of 2009. “Many companies are questioning their survival,” says Gerry Hansell, a senior partner at Boston Consulting Group.
Executives have to lead “their people out of a psychological stench and at the same time tailor their business to concentrate on a new reality,” says management tutor Ram Charan. That’s good advice during any business cycle but especially important today. Here are some new rules for managing through a tough 2009—and beyond:
MODIFY YOUR IDEAS
Money is scanty . Markets are unsteady . Morale is harder to boost in an atmosphere of anxiety . Acknowledge to yourself and your team that the world has changed. Dennis Carey, a senior partner at Korn Ferry International (KFY), debates that now is the time to point every technique that worked during boom years.
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