December 29, 2008
Is There Any Business Credibility Left After The Crisis Of 2008?
The business world left many dazed and confused after a wild ride filled with economic turmoil and criminal wrongdoing during 2008. It is possible to trust the people on Wall Street, the people in Washington DC and any of the regulators wherever they may be after this train wreck?
Is "business credibility" an oxymoron or can it be earned back? Each of us has to determine our own answer, but it is clear that 2008 is a year that few of us will forget anytime soon.
I received an email from my LinkedIn colleague, JC Brandon (http://www.jcbcapital.com), who shared some sobering statistics about the economy from 2008. I can't take credit (or blame) for the information below but it is interesting.
The 2008 losses are terribly serious:
Global Markets fall from $62.6 trillion [10/31/07] to $27.6 trillion [10/27/08], losing $35 trillion or 56%:
DJIA falls 48.2% from 14,279 to 7,392.27 [10/11/07 - Nov 21]
S&P 500 falls 52.9% from 1,576 to 741.02 [10/11/07 - Nov 21]
NASDAQ falls 54.7% from 2,861 to 1,295.48 [10/31/07 - Nov 21]
MSCI Europe Index falls 54.7% from 1,388 to 628.89 [7/13/07 - Nov 21]
MSCI Pacific Index falls 57.8% from 173.1 to 73.11 [11/1/07 - Oct 28]
S&P Latin America 40 falls 68.2% from 5,862 to 1,862.84 [5/20/08 - Nov 20]
Japan's NIKKEI Index falls from 18,297 [6/20/07] to 6,994.90 Oct 28 - a 61.7% fall.
Germany's DAX Index falls from 8,131 [6/20/07] to 4,014.60 Oct 24 - a 50.6% fall.
Britain's FTSE Index falls from 6,754 [7/13/07] to 3,665.20 Oct 27 - a 45.7% fall.
France's CAC Index falls from 6,168 [6/1/07] to 2,838.50 Nov 21 - a 53.9% fall.
Canada's TSX Index falls from 15,154 [6/6] to 7,647.11 Nov 21 - a 49.5% fall.
Brazil's BOVESPA Index falls from 73,920 [5/29] to 29,435 Oct 27 - a 60.1% fall.
Russia's RTS Index falls from 2,498 [5/19] to 549.06 Oct 28 - a 78.0% fall.
India's Bombay SENSEX Index falls from 21,113 [1/9] to 7,697.39 Oct 27 - a 63.5% fall.
Shanghai Composite falls 72.8% from 6,124 (Oct 16 '07) to 1,664 (Oct 28) in 1 year - 2007 the Shanghai Composite was the best performer up 161%.
These returns need to be adjusted for local currency gains/losses:
US dollar (70.80 on 17 March 2008 to 89.25 on 11/19) - up 24.9% in 7 months.
Japanese yen (.8087 on 11 June 2007 to 1.149 on 12/17) - up 40.9% in 18 months.
Chinese renminbi (8.11/.123 on 21 July 2005 to 6.84/.146 on 10/28). - up 18.6% in 3 years.
Japanese yen (.8087 on 11 June 2007 to 1.149 on 12/17) - up 40.9% in 18 months.
Chinese renminbi (8.11/.123 on 21 July 2005 to 6.84/.146 on 10/28). - up 18.6% in 3 years.
Euro: $1.60 on Jul 15 to $1.23 on Oct 23, -22%
Canadian Dollar: $1.10 on Nov 5 2007 to $0.768 on Oct 28, -30%
British Pound: $2.11 on Nov 5 2007 to $1.44 on Dec 4, -31.2%
Indian Rupee: 39.1 on Feb 1 2008 to 50.3 on Dec 1, -28%
Russian Ruble: 23.2 on Jul 11 2008 to 28.3 on Dec 22, -21%
Canadian Dollar: $1.10 on Nov 5 2007 to $0.768 on Oct 28, -30%
British Pound: $2.11 on Nov 5 2007 to $1.44 on Dec 4, -31.2%
Indian Rupee: 39.1 on Feb 1 2008 to 50.3 on Dec 1, -28%
Russian Ruble: 23.2 on Jul 11 2008 to 28.3 on Dec 22, -21%
Can the financial community earn their business credibility back? Based on the statistical damage that was done, there is a long way to go to get back to even. There are a few lessons that we can all take to heart from this experience:
1. Economies only stay strong for so long — in other words, what goes up must come down, or at least some of the way down.
2. Borrowing from my colleague Jay Goldinger, 2008 was a perfect example of Jay's theory that the masses would rather lose in company than win alone. Using the excuse that the S&P was down 40% but your portfolio was down only 30% is a poor substitute for disciplined investing.
3. Depend on yourself to make your money. Then take the investible portion and diversify it between multiple investments. Always remember that betting on yourself is the best investment.
2. Borrowing from my colleague Jay Goldinger, 2008 was a perfect example of Jay's theory that the masses would rather lose in company than win alone. Using the excuse that the S&P was down 40% but your portfolio was down only 30% is a poor substitute for disciplined investing.
3. Depend on yourself to make your money. Then take the investible portion and diversify it between multiple investments. Always remember that betting on yourself is the best investment.
As bad as 2008 was financially, if you have your health, then it was a good year and be thankful for it.
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About Joel G. Block
Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses. Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details. Also, be sure to check out our newest project: a blog to organize the blogs that cover entrepreneurship:http://www.entrepreneur-hub.comGo Out And Stake Your Claim!
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Comments on Is There Any Business Credibility Left After The Crisis Of 2008? »
Dear Joel
First, let me say: I hope you had a great holiday season.
As to your question in today's post, I believe we are actually looking at two issues in one article. The one is the credibility you address and I would very much agree that it will take a very long time for the industry to get that back. What surprised me, especially in comparison to my home country of Germany, is the anonymity that was kept in this financial downfall. Other than the Madoff pyramid scandal, there hasn't been a lot of personal blame put on individuals. Institutions and in some cases whole sectors, like the mortgage industry, received a lot of blame, but the decision makers didn't get much of the attention. I bet very few members of the public can name even a handful of executives responsible for this mess.
The other issue is regarding the results in the stock exchanges. I am no expert, but I know a little bit of math. What is typically not helpful is bundling things that don’t bundle well. Comparing the points value of an exchange index and the currency exchange rate at different times in different years is one of these unhelpful pieces of data. I frequently do business with Europe and there were very large fluctuations in the Euro exchange rate during the period shown in your tables. Just to take the peaks and compare the percentage development and then give the impression it makes the changes in the stock exchange indexes better understandable is a little questionable in my mind. There was still good value in stock if one knew which industries proper in the different market climates. Look at oil, gas, commodities. In the last 24 months people could make huge gains and get out when the going was good. It’s not your fault and not your numbers, but I felt it was worth mentioning.
To the question of credibility, I like to say that industry in general should pay attention to ethical issues. Many of us believed we had learned a lesson from Enron or Tyco, but obviously we haven’t. We have seen people who were courageous enough to blow the whistle being put on trial of public court, probably leading to less of this courage in the financial industry. Even now I am flabbergasted that there doesn’t seem to be accountability for the companies that received bail-out money. As long as ethical standards, accountability, and trustworthiness don’t improve, you and I will have opportunities for years to come to point to these sectors as examples how not to run a business.
Though the damage was huge, I still believe that the vast majority of businesses are run truthfully, caring about the customer, and always wanting to provide the best possible work, service, or product. I coach business managers and leaders how to have profitable companies while keeping these standards high. I know you do too. Thanks for posting a very important question.
Happy New Year
Axel