CEO Coaching: Be of Two Minds

“Be fearful when others are greedy, and greedy when others are fearful.”

—Warren Buffett

Sixty percent of CEOs surveyed by The Conference Board believe that economic conditions will worsen in the short term, and I suspect they’re correct. Warren Buffett, however, is on a buying spree.

Over the short and medium term, emotions play a large role in investments. Eventually, earnings and growth rule the day, but the short term drives much a stock’s activity (which is really gambling, not investing).

Likewise, CEOs are subject to short-term forces as much as anyone—perhaps more. Interest rates, unemployment rates, customer sentiment, and more can be disruptive in the short term. However, like equity markets, eventually earnings and growth win the day.

If you have a diversified investment portfolio, it won’t go to zero. Even as I write this, we’re in a major slump, and you might be down 15–20%. Awful, but not decimation. Unless Vladimir Putin unleashes a nuclear war, the chances are that in a few months or years you’ll be back on track.

To survive, a CEO likely can’t withstand a sustained 20% dip in revenue without significant cash reserves or cutting expenses. Companies can go to zero by losing 20% of their business. Anyone who has laid off employees and closed portions of an organization to live to fight another day knows real pain, but it beats the alternative. They must use what tools they have at their disposal to keep the business afloat. Short-term responses are required.

At the same time, the organization that can look for opportunities like Buffett, while all else are fearful, can reap outsized returns over the long run, just like Warren. That might be M&A, capital equipment, or an expanded sales force to pick up business from the fearful. 

This is much easier done if the business is private and has adequate cash reserves. They can think long term even in the face of short-term disruption or chaos. 

F. Scott Fitzgerald said, “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” That sounds like leading in tough times to me. Planning for chaos and success at the same time.

Hold significant cash reserves, eliminate indefensible expense, and plan for success in the long term.

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