When the global financial crisis hit in 2008, it was the third major collapse our Cofounder, Russ Stephens, had experienced since leaving school and entering the workforce.
It was only then that he finally realised, these cycles will never stop!
It doesn't matter how good things appear on the surface, there is always a big problem buried away out of sight that will pop up and destroy everything at least once every eight to 12 years…
And no one will see it coming…
Not even the pessimists that tell us every single year that, “It’s coming,” and then say, “I told you so,” when it hits!
Even a broken watch is correct twice a day.
What hit Russ especially hard this time around was that he almost got it right…
In 2006 Russ cashed out of property believing it was overcooking and unsustainable…
His neighbours laughed at him when he sold his massive home and moved into a modest rented house…
“Property will never go down,” they said at a farewell dinner party…
And 12 months later he started believing them…
Values were increasing, and he felt like he was getting left behind.
However, the fundamentals just did not stack up, nothing made sense, but there was only good news and positivity in the news…
Which is why he thought he’d made a terrible mistake, and decided to jump back into the market with both feet…
Wow, what a mistake that was. So don’t ever ask him for investment advice, he’s the worst investor ever!
Business, sales, marketing, sure, Russ has lots to share with you, but investments, he decided it’s best to leave that to people who know what they are talking about!
Anyway, the Global Financial Crisis hit and his net worth got hammered.
However, what’s important is how we learn from our mistakes rather than the mistakes themselves.
It was a few years later that he discovered an article online that talked about the economic clock…
If you imagine the face of a clock, where 12 o’clock is the top of the market and 6 o’clock is the bottom of the market.
Everything in between correlates to what generally happens in the economy; rising interest rates, falling share prices, tighter money...
And the clock always moves forward, every month, even if it’s only five minutes.
What you are doing here is, rather than trying to predict exactly when the next market crash will happen, you’re simply reminding yourself that we are ALWAYS in an economic cycle and next month will either move us closer to the peak of the market in good times, or towards the bottom of the market in bad times.
As simple as this idea was, Russ thought it was a brilliant way to avoid getting caught up in the emotion of these boom and bust cycles that business owners and investors we are continually exposed to…
So, on 1 January 2012 Russ added a new KPI to his business planning spreadsheet, ‘The Economic Clock’.
Each and every month he would move that clock forwards, sometimes by only 5 minutes, other times by up to an hour…
But it always moved forward, never backward, and it never stood still...
Looking back, he could see that he recorded the top of the market in early 2018…
Some might say it peaked earlier, others will say there was still a lot of growth in the next 12 months, but it doesn't matter..
Because like we said, the purpose of this exercise was to serve as a reminder that we were in a cycle and the peak was coming…
Knowing that made it easier for Russ to hold cash and get ready for when everything went on sale, rather than experiencing FOMO and feeling the need to jump into the property and share markets.
And as we entered 2020 and the global news got steadily worse, Russ continued to update the economic cycle in his spreadsheet each month, reminding himself that the bottom had not yet been reached and that the losses he’d experienced in his portfolio were only temporary and would recover in time.
Now this may all sound perfectly logical, and that’s because it's supposed to. Because during times of economic distress we all fall victim to our emotions at some level, so anything you can do to keep your decision-making logical rather than emotional will help you to make better decisions.
So, when you put together your plan for your business, make sure you include the time on the economic clock!
You may not predict the next boom, or even the next bust, but you will be aware that every month takes you a step closer to the peak!
So that is how to predict the boom time for building companies and avoid getting caught out by the recession that will eventually follow.
Do you see how this can help you to always keep a level head and how important it is for your decision-making process, particularly during times of economic turbulence?
Give it a try and see for yourself how easy it is to monitor every single month!
Need some help with implementing this in your building company?
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