Shadows of the past: Lessons from the Great Recession and how they can defeat the Covid-19 decline.

Introduction:

As we confront these uncertain times, especially in an ailing global economy, every step must be taken with extreme caution. The famous quote from Indira Gandhi “History is the best teacher, who has the worst students” is an extremely profound one. However, inspiration for this blog entry stems from an urge to prove it wrong. As we face unprecedented times, I agree by looking to our past, we can best shape our future. However, I contend that we are capable of doing that, when in this case the “history” we refer to was not that long ago.

For the purposes of this article I will address a selection of the salient advice I have both on a personal level and a commercial one as learned from the 2008 financial crisis as to how they can best respond to the Covid-19 induced recession. I will deal with each area separately. If nothing else, I sincerely hope even one person, entrepreneur or otherwise reads this and gains food for thought on their next move.

Business:

People are a resource too:

One of the most common realities a firm must face is that costs need to be cut. However, I maintain and I have mentioned in a previous post that Human Capital is one of the most precious resources a firm has. A firm can downsize their premises, downgrade their equipment and reduce benefits in kind, with no real long-term consequences. However, human capital is a different story. People remember how they are treated. They remember how they are valued and this reputation spreads like wildfire. In days like today, where the retention of top talent is one of the greatest challenges facing the modern business world, we must think of this clearly. This was seen in a number of commercial law firms in the U.K during the 2008 financial crisis. A large number of Associate level staff were sacked during the crisis and as things picked up their absence was felt. In the years that followed there was a leadership crisis and a large, expensive search for the top Partners and Senior Associates began. This cannot be allowed to happen again.

With risk comes reward:

In a time of uncertainty many people are worried about what to do next. However, although difficult I strongly urge that people take an entrepreneurial risk in a time of uncertainty. This is the golden hour for those who want to make a dream become a reality, a side hustle become a main revenue source and they should do it right now. While the chances of success are not at their highest, there is never a perfect time to do something. Obviously, certain industries will thrive in these times. A Personal Insolvency Practitioner for instance might have an easy time finding work. However, that’s not to say the cleaner on a career break with an idea for a new vacuum cleaner innovation won’t also thrive based on its sheer innovation. During the Great Recession, firms such as Airbnb and Uber started and thrived quite quickly despite the economic downturn, based simply off brilliant business. The success of a business in any era is a non-linear prospect. It is not something people can confirm, so the best time to start a business is right now. Do not shy away from an entrepreneurial risk.

Personal:

Proceed with caution with personal finances:

Owing to my completion of internships in finance and my voracious reading around the topic, I have had several friends come to me for investment advice. In the information age we are bombarded on Facebook and Instagram with Forex traders seemingly living out their dreams while trading off their iPad after little financial background and flimsy starting capital. They are beguiled by success stories of people doubling their money on penny stocks and getting to retire at 40. To all of this I sternly say, taper your expectations. It is easy to buy into the snake oil salesmen of the online world but please be careful with how you invest your money and who you trust to provide financial advice.

A return on investment that outperforms the interest rate your bank offers is a win. You must compare like with like. Otherwise you will never be content with your investments. If you compare your Portfolio to save for a holiday fund for that three-month trip to South America to Berkshire Hathaway’s behemoth fund then you will only ever be disillusioned. Always check your sources. And when you do decide to invest always consider the prospect of losing that money. If the money is truly essential, never invest it in the one place. Furthermore, rule one of investing is diversifying the portfolio. Invest in many things, sectors and not just one. This diversifies away some of the risk (reducing beta, for the more technical readers). Above all else, go to a trained, regulated and well-established financial advisor with the backing of professional bodies before investing. Err with caution my friends!

Budgeting is your best friend:

People all over the world have been faced with adversity. Some have faced pay cuts, others job losses and some have even seen their business go under. The one common denominator to overcoming these obstacles for your personal finance is budgeting. Whatever one’s financial position help is always there. Forward thinking and the adequate planning of one’s resources is an extremely capable tool by which we can defeat the current crisis. If you have experienced a cut in income, respond with a comparative drop in lifestyle as much as is practicable. During the 2008 Financial Crisis the idea of budgeting to deal with income drops was one of the most prominent pieces of advice given.

Therefore, do not wait for the bills to pile up and proactively budget. If needs be, consult an advisor or government agency to help in this task. It could make all the difference.

This might be the simplest piece of advice I tender, but one of the most important nonetheless.

Conclusion:

The biggest reason for this article stems from my casual passing by the television at home which had sky news on full screen. I heard, to my horror, the words that I won’t soon forget from famed economist Harish Natarajan who declared that the impact of the Covid-19 recession has the potential to kill even more than the Virus itself. From the famous Michael Lewis book “The Big Short”: For every 1 percent unemployment goes up, 40,000 people die. This is a truly frightening statistic and one I cannot willingly allow to happen. That is the reason I started this blog. To try to use what I learned to have some positive impact.

Therefore, please research your next step. Whether a business owner with a glut of staff to look after or a broke college graduate like myself, remember to learn from the past. I believe that while times are tough, we can defeat them, by looking back to how we all defeated the greatest recession mankind has ever witnessed as a unit.

I leave you with one of my favourite Latin quotes:

Astra inclinant, sed non obligant. (The stars incline us, they do not bind us)

Stay safe and stay positive everyone!