It's a funny old world. While I'm not new to reading blogs, I'm a new blogger, so, to be honest, I don't know the etiquette of exactly how to reply to a comment such as the one made to my previous post. As such, possibly breaking every rule of blogging, I'm going to reply exactly as I would were those of you reading this one of my clients raising the same issues.
So, make yourself a cup of tea or grab a cup of coffee and spend some time with me.
There were three issues which were raised in the comment made by Mr. Voice. Two of them were stated directly. The third was implied. I will take them in that order.
First, to the issue of Warren Buffett and the performance of Berkshire Hathaway (NYSE: BRK-A and BRK-B).
Yes, Mr. Voice is correct. The BRK portfolio has, like every other stock, lost a truly impressive amount of its value during this downturn - as it has done in past downturns. The wonder of Mr. Buffett's company and his investment strategy is that he buys what he understands - both when he buys companies and when he buys shares of stock in other corporations, builds in a margin of safety, ensures that he trusts the management of those companies absolutely, and only buys for the long-term.
When the market goes down, by definition, the value of his shares will drop accordingly. Much of the value of the BRK portfolio is based on the shares the company owns. Companies like American Express and GE and Coke and Wells Fargo Bank and others. Then there is the fact that many of the BRK core businesses are in the insurance industry - like Gen Re, GEICO and others. It is a diverse portfolio, because the corporation also owns many retail businesses - from Borsheim's Jewelers to See's Candies - and manufactured homebuilders, such as Clayton Homes. And those are just the tip of the Berkshire Hathaway iceberg.
So, when the market goes down, so does the value of Berkshire's share value. And every time, since the inception of the company, it not only regains its share value but grows even further. Let's face it, there aren't a lot of companies out there which have hit a high of over $150,000 for one share - yes, one share - of stock. And, interestingly, in this market downturn, because Mr. Buffett has been hoarding cash - not because he wanted to, but because there weren't enough good deals out there to spend the estimated $40 - $60 billion - yes, billion - on which he was sitting, he has been able to make future-oriented moves that were previously unavailable or unattractive to him. Like his preferred stakes in everything from Goldman Sachs to GE.
To Mr. Voice's point - yes, the value of BRK has dramatically dropped. However, to Mr. Buffett's point - there's nothing wrong with that. Not now. Not in this market. Because just watch what happens when the market starts to go up again.
That leads me to Mr. Voice's second point: market consolidation.
Once again, I must agree with Mr. Voice. The market is consolidating. There are major changes. The industry no longer looks as it did a few years ago - nor will it going forward.
As I have often written, the Big Boys have seen what your industry has to offer - which is a left-handed compliment if there ever was one, because it means you have to up your game.
Mr. Voice challenges me to identify the specific opportunities that are available to you. In fact, unlike my clients, I cannot do that. I do not know your business. That being said, however, you do. You know your business like no one else.
Therefore, what I can do is point out some of the opportunities that are available to you depending upon what your business is as well as the state it is in.
First, contrary to popular opinion, there really are some of you out there with cash in hand. If you are one of that group, it is time to do what Mr. Buffett has done throughout his investment career and identify what he refers to as the "cigar butts" - buying small and medium-sized opportunities which are valued - and as a result costed - lower than they should be. If you have cash, now is a time to look at expanding.
How you expand is defined by the business you are in and what the market is crying out for now and next.
If you are a grower and you have cash, the answers are more obvious. Whether it is buying land for expansion, going into joint ventures with other providers to expand your current offering or looking at where holes in the market are appearing because others (in the UK and abroad) can no longer afford to fill them, the answer is stepping up and in. The opportunities are there.
If you're a retailer, start with Christmas, plan for Valentine's Day and keep looking closely at why your foot traffic keeps coming in your doors. You offer something different and, in this economic climate, something particularly special. Whether in plants, gifts, clothing, books or coffee, you offer a lower priced alternative to the High Street stores. Moreover, when your customers buy something living - whether for themselves or others - they are buying a feeling that lasts. Don't underestimate the power of that in this market.
And make sure, if you have a cafe, that you have WiFi. (I know. I keep banging on about that but it really will get you the new demographic that you need now and into the future.)
On the edibles side, the challenges are high but the opportunities are great. The major supermarkets will be actively lowering their costs. That includes the cost of travel to get the food they want to buy onto their shelves. Whether you are supplying to the markets, either through a wholesaler or directly, or are part of the supply chain that creates prepared foods, you want to look closely not just at those to whom you are already supplying, but to which organizations you might supply in future - whether in the short-, mid- or long-term.
Because the other part of this downturn is that psychologically it is creating a return to fundamentals among the buying public. People are eating in more than they're eating out now - and it's going to stay that way for a while. Use it to your advantage.
Which takes me to Mr. Voice's point about the contracts you have with suppliers. My reply: So what? Just as banks are renegotiating contracts with mortgage holders, so, too, will your suppliers renegotiate with you if you're willing to walk away.
The banks aren't being generous when they renegotiate terms. Nor are they doing so just because the Government says they must. They're doing what they're doing because it is much better for them in the short- and mid-term to keep a cashflow coming in - rather than having a long-term investment portfolio of empty, foreclosed houses.
Your suppliers are in exactly the same position. They need you. They'll renegotiate if you stand firm. But you must be willing to walk away.
Do your research. Make sure that you have other options - possibly not the same, but comparable - before you walk in their door with your demands. And they are demands. Not requests. Because they need you. Otherwise, they end up with a lot of product and no cash coming in the door. Just like you, that's the thing they want least.
All of which takes me to my final point - and it's all about fear.
What we know is that this downturn is going to last until at least mid-2009. We also know that the benefits of the upturn, if it starts that early, probably won't be seen until the early part of 2010. What the talking heads - and, unfortunately, whether intentionally or not, Mr. Voice - create with those facts is a sense of fear.
Don't go there. Don't listen. Don't fall into the trap of making your decisions based on fear.
Fear paralyzes. It makes everything seem impossible.
Where Mr. Voice and I agree is that some of you made mistakes in the run-up to this economic fiasco. Probably, many of you. Fine. That was then. This is now.
From determining how to improve your business to looking at how best to position your business for sale to others, you work with what you have now. Objectively but positively. You can't undo what was done - but you can change how you play it now.
That's your responsibility as business owners, executives and managers.
What I know is that you can do it - but only if you keep reminding yourself that you can. Don't let anyone try to convince you otherwise.
