A Price To Be Paid Or – Paying A Price?

We look at “price” far too often as having a meaning within meanings. The issue more times than not is people know there is a price, can calculate what that price might be, then – they will do everything to avoid paying it.

Not by careful forethought and planning. No, what most do is hide behind a guise or belief, if they no longer pay any attention too it – they’ll escape paying it. Problem is that doesn’t work in the real world.

There is always a price to be paid. Exactly what one pays because of luck, avoidance, willful ignorance, etc. Is nothing more than living a life based on “lottery ticket” thinking. There is no financial or intellectual prowess involved. No matter how one wants to kid themselves.

This mentality has the propensity to be far more harmful because – people begin to believe they were smart, as opposed to lucky. Then, they become over-confident in their ability to tally exactly what price they might, should, or will pay across the spectrum. This is where things get dangerous for far too many.

There’s nothing wrong – with being wrong. You will never be correct 100% of the time. If you have, it’s only a matter a time. Being wrong because you looked at the differing options, weighed your financial outlays or impact. Then acted, or not, depending on your best interpretation is the way the game is played properly. You can adjust strategy, and tactics based on such to improve your percentage. If you try doing that based on luck alone. At some point – your luck will run out. Usually at the worst of times.

As many of you know I give speeches or lectures, write books, articles, and more on entrepreneurship along with motivation. I’ve been blessed with the abilities to do such things and found a calling for one reason. I’ve actually done what most others only speak or write about. Along with, I have “paid the price” many times which – has nearly ruined me more than once.

Knowing or being considerate of the consequences faced going in. Making the decision as to “go again” is probably one of the hardest decisions anyone striving to raise themselves above mediocrity can make. I know because – I’ve been there. Again, more than once.

I state the above only for the reason to help put context into what follows. Over the last week I have been asked many questions, along with some dismissals of my calls or assumptions on the financial markets. The blog itself added many new subscribers (which goes without saying I’m always honored and humbled) when I stated (I’m paraphrasing you can read the original article here) “There was nothing left to see or watch any longer. The markets are now only a casino. And, that’s giving casinos a bad name.”

The reasoning behind this was borne out of frustration I was having when being asked questions (both publicly and private) about the markets. Budding entrepreneurs were continuously referencing how they should emulate (or imitate) the success stories they were reading, or watching across the financial news media.

All they saw was IPO (Initial public offering) after IPO announcement or rumor heralded as the new brilliance of creating a start-up. Nothing in their line of questioning delved deep into the milieu of starting and running a business. Everything seemingly revolved around starting something to “cash-out” via the bemoaned Series A, or other Wall Street derivatives.

The harder I tried to steer the conversation towards real entrepreneurship and its thinking or work ethics. The more their eyes seemed to gloss over.

I would point to Facebook® (FB) and its horrible IPO and, they would point to FB current stock price as validation. Their view had some legitimacy at a different time, but only for the reasoning where, the free flow of real people, investing their own money in the markets prior to 2008. Not what is taking place today.

Today is more in line with the 1990’s however, this time the speculation capital is not coming from traditional speculators. It’s being fueled with “free money” via the Federal Reserve’s monetary intervention. And this is not your father’s 1990’s market conditions.

Using Facebook as the preeminent bell weather below is a chart since its fateful IPO launch. In less than 90 days people who bought into everything that was FB quickly realized the “Golden goose” laid an egg. And it stunk. Many lost more than half of their initial investment and went from “We gonna be rich!” to “How am I ever going to recover from this?!” in a heartbeat.

Month after month, quarter after quarter, nothing was showing any signs that this once heralded IPO was ever going to turn into what the financial media or the corresponding hedge funds claimed it would be. FB was no longer the book to be read or referenced. Then, 2 things coincided.

First: There was a hint they might actually make a profit. (Albeit if you one actually listened to the earnings call and not the media spin – it was nothing to cheer about)

Second: Fueled by short covering and a rotation for exposure to the next earning cycle FB stock doubled from just over $25 to a high of just over $51.

So now the question must be asked: What has FB done that warranted not only a doubling of its market cap, but (and it’s a very big but) now made it over 10% more valuable than its debut as a publicly traded company? When for all intents and purposes, most couldn’t talk about it without feeling ill. The answer? Nothing.

Without the “free money” sloshing around searching for anywhere there might be the remotest of chances at a favorable earnings report. (favorable as in can be spun, minced, and spit out in such a way that “bad is good, and good is great!”)
There is absolutely no reason this company is now worth double. Period.

To bolster my argument I annotated on the chart below what happens the moment there is even a hint that The Fed. might cease to provide any more “free money.” As in the dreaded “Taper” or reduction in purchases via their quantitative easing policy aka QE.

The moment the rumors start…down you go with gusto. The moment the rumor is proved to be false…Boom, up you go just as fast. You get those types of reaction when you (or the company itself) does something to cause it. Lawsuit, bad earnings report, change of management,_____________(fill in the blank.)
What you shouldn’t get is that type of reaction out of the thin air if you’re doing things correctly and people are investing in you because they believe. When this happens to ALL the speculative stocks across the board regardless of their market segment. Somethings wrong.

Here's Facebook as the markets close Oct. 11, 2013
Here’s Facebook as of the markets close Oct. 11, 2013
I added another favorite LinkedIn® to show the same pattern happening across the spectrum.
I added another favorite LinkedIn® to show the same pattern happening across the spectrum.

Now someone who doesn’t follow the markets might shrug and say. “OK, but so what? Why should it matter? The price is up right?” Well, yes, and no.

The price is up but not for the reasons that make economic sense. These type of price actions are indicative of “bubbles.” And all financial bubbles burst. The issue is understanding, burst means just that. Or to paraphrase David Lee Roth, “Here today – gone later that day.”

Thinking or believing one can anticipate the exact moment where or when is a fool’s errand. All one can do is place their best guess forward, put the necessary actions in place and execute based on those assumptions. Then, let the world have its way with the rest. Would’a, should’a, could’a, thinking after is irrelevant.

If you were wrong, change your strategy or tactics next time. Beating your self afterwards because you left money on the table for reacting too soon, or waited too long is addressable as to fix or change. Blind-fully thinking you know when or where during such times or base your actions to paraphrase Chuck Prince of the former Citi® Bank financial debacle, “While the music is playing you have to keep dancing.” Will lead you down the wonderful road of ruin. (It worked well so for him hmmmmmm?)

Below is a chart of the Russell 2000® index as of the markets closing Oct. 11, 2013. Once again at levels never before seen in the history of financial markets.

Need anymore be said?
Need anymore be said?

This is why I made the proclamation of no longer focusing on the financial markets as I have over the last few years. There is nothing here to extrapolate that makes financial sense any longer. We are at perilous heights fraught with danger and uncertainty that no one (and I mean No one) knows exactly how it will end.

The only thing to do from this moment on is engage your time in true business. True commerce. Where profits are made by making products that people like to buy. (Meaning the exchange of actual legal tender that a bank accepts as a deposit in your account as real money.) Not concerning yourself with things people “like” but never buy.

Reduce debt. Or, only take on debt that has the primary function of proving its validity to actually turn a profit as to pay itself off. Put your time and resources (along with your energy) into the things everyone else seems to find boring. i.e., Constructing real strategies and tactics to take advantage of situations when everyone else is acting out of panic or fear.

This is where your true forth coming profits will be made. Not by chasing business models that harken back to past bubble mentalities. There are plenty of places to make money, plenty of ideas to tried, even more models to be broken as to unlock real value in new ways. Put your time and your efforts into this. Not focusing on what is transpiring daily in the markets as a reason to feel you might be missing out on something. You’re not.

It’s all an illusion that you not need be glue too for your business survival. An understanding of the markets and, their role as to what, or how, certain events can affect you is what you need to know and understand. Nothing more.

Don’t waste your time trying to understand why the so-called “smart crowd” seem confusing when you listen to them. It’s because most, if not all of them are making it up as they go while trying to sound relevant or smart. Don’t be fooled. The reason they make no sense to you most of the time is for that very reason. They’re making no sense.

Concern yourself with your own business. What you can do to improve your customers experience. What value you can add to your services that customers will pay for. That is how you should focus your time and energies. That is where your real profits will be made. Now, and well into the future.

I’ll leave you with one more item to lend credibility to what I’ve been speaking on, and writing both about as well as against these last few years.

Here’s the latest headline that just graced one the papers of record for the business community. The Wall Street Journal®.

In Latest IPOs, Profits Aren’t the Point
Two-Thirds of U.S.-Listed Tech Debuts in 2013 Lost Money

But don’t worry. Twitter®’s IPO will save everything. Right?

Well…If the largest run up of the financial markets in years over the last 2 days holds because, Congress is negotiating and, will find an amicable solution beloved by all. Then I too will believe once again in Unicorns, and Tooth Fairies. Until then, just call me – a skeptic. I’m comfortable with that.

Are you?

© 2013 Mark St.Cyr