It is clear that 2009 is shaping up to be a year of roiling markets, unpleasant investment surprises and difficult choices. How should the family business relate to the markets to prosper in these turbulent times? Make a vow to get involved with your investments.
Make time for your money
What are the practical implications of this vow? Do you personally understand your investments? Many owners have only a faint idea of how their hard earned cash is invested. This task is delegated to a CFO, an advisor or a private bank so that the owner can focus on the business. In an uncertain year like 2009, this would not be a wise decision. Although the business itself will demand great focus and attention to make it through this year, the money needs you as well.
Avoid the next Bernie Madoff
The clients of many private banks trusted their advisors when it came to Madoff's funds. Many of these investors congratulated themselves that they were getting a much better return than anyone else in the market. They never questioned why this was possible. They enjoyed this fairy tale so much that many of them gave Madoff their entire life savings. If we are going to fulfill our vow for 2009, we will realise that no one money manager should have 100% of our investments. (My rule of thumb in no more than 4% with any one manager). There is no free lunch and anything that sounds too good to be true is. Don't trust advisors to share this view – insist they do.
Assess your advisors
Take a hard look at your advisors and see how they have done in 2008. Were your advisors proactive? Did they keep in constant contact with you? Were they willing to get out of losing positions early? Good advisors are thinking deeply about revising the family asset allocation, measuring risk correctly and getting out of shaky investments.
Understand if there are any conflicts of interest with your advisors – are they paid to sell you products? Consider starting your own family office or joining a multifamily office in 2009 to get the most objective advice available today.
Remain liquid and prepare for recovery and recession
Even the best experts are divided about how the market will respond to the stimulus package being put in place by the new US administration and the major world banks in 2009. We may see the world economies revive toward the end of the year or we might face an even more dire global recession.
Given such uncertainty, the best strategy is to prepare for both outcomes. Maintain a significant liquid cushion in cash instruments (even though they pay almost nothing) and wait for this storm to pass. With banks continuing to withhold credit, cash will remain king throughout 2009 whether we face a recession or recovery.
Be bold when your instinct tells you to move forward
On the other hand, don't be afraid to take risks where you really understand those risks, and make the investments today that will move your business forward. Family businesses become successful because they are willing to take risks and have a much longer time horizon than many other organisations. Real estate, plants, equipment and labour are available at bargain prices. Be bold where it rings true to do so, and you may look back on this recession as the best thing that ever happened to your business.