Tuesday, March 31, 2009

The Short Term And The Long Term

Plot your moves - in advance!

It is amazing how in a crisis we focus solely on the short term. The immediate is paramount because survival, continuation or existence comes into play. If you can't make it through the short term, the long term has no relevance. So focusing on the short term is necessary and prudent but ...

The but is there because the astute and smart plan out the long term before they are forced to focus solely on the short term. The winners contemplate the short term in the context of the long term, not by accident but because of planning and preparation. Here are some observations at three levels

National Interest
The current turmoil facing our economy is being dealt with unprecedented and unconventional actions by the government. The argument goes that the immediate need to mitigate "systemic risk" trumps the need to have a long term strategy or roadmap. We are in a crisis and need to act now with scant regard for future consequences. This mode of thinking is concerning. I worry about the immediate impacts of this crisis but I also worry about the long term effects of these policies. I am in this for the long haul and need to be convinced that we are pursuing a viable and sustainable strategy (hint hint - Japan and the lost decade). Did we plan for this situation - no. Should we have considered the scenario and planned for it - absolutely!

Yes - it is easy to say in hindsight that we should have but then again there are government agencies, a system of checks & balances and governance models to have prevented this from happening. Or if it happens we should have had the long-term vision to deal with such a crisis.

Organizational Maturity
Every mature business should plan for a downturn. They should anticipate and prepare for tough times which are inevitable. The ones which prepare will have charted a long-term strategy to deal with both the ups and downs of the business cycle. But when you read about the reaction of most businesses to this crisis - it is clear that many were unprepared - they are clearly reacting. Circuit City decided to trim their top performers because they made too much money, Starbucks can't figure out how to sell $4 coffee in a recession, banks can't get their arms around their balance sheets, some auto makers are clearly clueless, many businesses are hacking off their most valuable assets - their employees just to reduce cost and on and on we go.

The smart business is investing in R&D, retraining their workforce, exploring M&A opportunities and in some sense going on a shopping spree. Obviously these businesses are prepared and their short term reaction is aligned with their long term strategy. Now that is a winning formula.

Individual Focus
Do you have a long term strategy? Financial strategy, career strategy, investing strategy ... living your life strategy. If you do then you have long term focus and a strong sense of where you want to be, how you will get there and how you will manage the ups and downs of life.

When folks react to the current market turmoil by dumping their 401(K) or cashing out of the market - it suggests that they had not thought through their investment strategy. The stock market is not a regular and consistent wealth creator. The 8-11% equity returns we are told about are generated in clinical conditions over long periods of time. To make money investing in real companies requires diligence, commitment and time.

If you are uncomfortable with your financial situation today - do what lets you sleep at night but also invest in having a long term vision. A vision which is realistic, actionable and comprehensive. You cannot predict the future but being unprepared and reactive does not get you very far either.

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