New Year’s Priorities, Thoughts And Goals For An Uncertain Time
Dear Clients and Employee-Partners,
Usually the first page of the new calendar turns and our priorities/resolutions are made as we eagerly start another annual journey with optimism, earnestness and excitement. If you are like us, you are planning to work harder and smarter than ever to achieve individual and collective goals to the best of your abilities. It is a time to be reflective, pensive and honest with yourself. There are personal, professional, and hopefully societal goals that energize us as we finish the holiday festivities and symbolically start, once again from zero. We love this time of year because anything and everything seem possible as bad habits can be changed, new plans and strategies can be initiated, and mistakes are a thing of the past as all that matters is today and tomorrow.
This turn of the year feels a little different to us and for many reasons, the foundation doesn’t feel as firm, the future doesn’t feel as certain and optimistic, and the path forward does not seem as clear. The markets are extremely volatile and virtually impossible to anticipate or navigate but unlike other turbulent periods, the reasons why are not obvious. The political climate both within the U.S. but also around the globe appears to be exacerbating the mood swings versus trying to help smooth the edges. The global economies are fighting a tug of war between needed global coordination and the isolating populism that many people are embracing as the preferred way forward. And if this wasn’t enough, throw on top of the pile the eventual rise of global interest rates, the shrinkage of sovereign balance sheets, the newfound power and seeming anger of massive amounts of algorithmic trading, and the paucity of truly permanent investment capital. It can just feel overwhelming to prioritize a useful list of goals, thoughts and New Year Resolutions.
All this said, we believe that because things appear so crazy right now, it is the best time to remind ourselves that simplicity is often the best antidote to complexity. That is why we are sharing with you our extremely simple and straightforward thoughts/priorities for 2019:
Make sure we remember what “value” means, even if today it is a dirty word when it comes to investing. Today nobody wants to hear about tangible or intrinsic value, fundamental analysis, margin of safety, independent thought, contrarian investing, due diligence, patience, cost controls, cash flow, counter cyclicality or low p/e’s. Growth and momentum are wonderful, but just when the entire world appears to capitulate by declaring a concept as important as “value investing” being deceased, even more painful lessons are often learned. By the way, in addition to “value investing,” let’s not forget “personal values.” It really isn’t so difficult to be a “good person.” In fact, the crazier and angrier the world appears, the bigger the difference “good people” can make.
Don’t confuse a low stock price with stupidity (or a high stock price with genius). There are many companies (we are at the top of the list) who have had a solid 2018 both operationally and strategically and their market price reflects substantial loss of value. We are not saying that this variance shouldn’t be constantly and honestly assessed to make sure one isn’t completely missing something material that the market sees or fears. We do this to ourselves every day, trust us. But you really can’t and shouldn’t manage or build your company based on short term swings in your stock price. In today’s dynamic and transparent world this is a lot easier said than done, but we believe building quality earnings and cash flow, smart diversification, protecting downside risk, and building a culture, brand and strong client base will ultimately best reward all stakeholders. Unfortunately there are no quick fixes to achieve any of these but having a good plan with “buy in” from every constituency should eventually win.
Don’t forget about playing defense. Since the financial crises, the general climate has been a strong financial wind behind almost every company resulting in an unprecedented global recovery. Aggressive expansion and “damn the torpedoes” offense is a lot of fun when it works. But let’s not forget, cash and liquidity is good. Improved credit ratings are important. Undrawn lines of credit can actually be an asset. Capital structure matters. Keeping a continual watchful eye on costs is even better than growing revenues because cost reductions repeat annually. Economies cool. The consumer scales back. Over-leveraged companies have fewer options. Restructuring and bankruptcies occur to even companies that were once the most admired. The better one can master the art of defense, the more effective one will be on offense.
Appreciate your people—both employee and client-partners. There isn’t one person on this planet who MUST work for you or MUST buy something from you. Every day a person comes back up your elevator to sit at his or her desk or calls to make another purchase is a blessing. These relationships need to be earned every single day and all that is required to break these bonds is to take them for granted, even once.
It has to be about more than money and wealth. We are as competitive and capitalistic as anyone. We hate to lose on an absolute or relative basis and when we do, we work even harder. That said, we believe it is important for us and everyone who we touch both professionally and personally to have broader and more important goals and aspirations. A company has to stand for something. People need to accurately believe they are doing something meaningful and important. They need to know they are making a positive difference. Personal integrity is non-negotiable. Treating everyone with respect is the bare minimum. Empathy and compassion define who you are as a human. Work is important, and a massive priority, but it cannot be the only one. Family, community, friends and important causes should never be sacrificed. Mentoring, leading by example and assisting those in need are privileges. Everyone has their own way of prioritizing and balancing their many demands but a life based predominantly on career and W2 will never be truly satisfying. We will continue to work hard this year (like all others) to never lose this vital perspective.
Nothing we have discussed here is earthshakingly new or brilliant. In fact, we believe this is all straightforward and should be obvious to all. That said, sometimes in periods of extreme disarray, common sense is no longer very common.
We look forward to spending 2019 either doing our best to serve you as client-partners or help build Jefferies with you as employee-partners. Regardless of the uncertainty and volatility, we would rather be us than anyone else because we have the privilege of working with all of you.
Happy New Year,
Rich and Brian