Бесплатный фрагмент - The crisis will be back. What is to be done?

First published in 2018.

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Frequency and Causes of Crises

The Economy is a big roulette game

Some experts believe that crises are cyclical. Yet harnessing cycles of crises for your own benefit is very much like playing roulette. Imagine a classic roulette table with a green felt betting mat.

Let me explain one detail for those of you who do not know the rules — just look at the three vertical columns of numbers and then locate the three rectangles under the numbers 34, 35, and 36. Placing a chip into one of these three pockets wins you 2 to 1 if the ball settles on any of the numbers in the respective column, meaning your chip will earn you two more.

Now imagine that you placed two chips in two pockets. If your bet wins, you get two more chips, losing one, leaving you one chip up. It is perfectly clear that with the ball settling on zero or any number in the other column you lose both of the chips you laid down.

Time to remind you of the probability theory. Simply put, the longer you study or measure something under the same conditions, the more accurate the result. One example is, the more times a coin is flipped, the more likely it is that we get half tails and half heads, i.e. a 50:50 probability of one of the two outcomes.

So, start laying down two chips on the same two pockets over again, keep collecting your prize chips if you win or place two more chips yet again on the same two pockets if you lose. The probability theory suggests that the longer you play, the more likely the ball is to settle on a number in each of the three columns in about 32–33% of the cases, with about 1–4% hitting zeros. Consequently, if the same two columns are permanently bet upon, you should win in about 64–66% of cases, which is more than 50%, meaning you should always be one chip up.

I’ve done this experiment dozens of times at different roulette tables in dozens of casinos in different countries. The stack of chips I won would always grow slowly. Always.

Why haven’t I become a millionaire on the back of my discovery, this perfectly legitimate way of making money at roulette? Because after a while, a new croupier would come to the roulette table to play against me.

The probability theory that had made the ball spun by the previous croupier land in the roulette slots with a distribution of 32% +32% +32% +4% (i.e. zero) suddenly stopped working. Well proven and globally accepted, it would no longer produce the expected outcome, and all my winnings would then melt away.

It does not really matter what skill or magic the “killer dealer” practised in each case. What is important to both aspiring and seasoned entrepreneurs is that all laws in the business world, however free they may appear, are in fact influenced by forces unknown to us. The probability theory can play a trick on you if you put blind trust in the “hand of the market” being free of anyone’s control and, consequently, in algorithms that can be identified and exploited.

Believing in a self-regulated market or in techniques that help to identify impending crises through certain established behaviour patterns in a given economy is not unlike reading tea leaves or telling fortunes by the stars. “The only way to win money from a casino is to own one” runs the famous adage favoured by gambling enthusiasts.

The economy is a huge roulette game. A budding entrepreneur can be allowed to place bets with no one interfering with the game for a while. But as soon as one gets auspicious or incredibly lucky, enter the “killer dealers”. They are not competitors or criminals; rather, they are the ones holding aloof, sipping their whiskey, and keeping a close eye on the game and the players. They know how to analyse all the odds and scenarios, both now and looking forward. These people never gamble. They are professionals who ensure no one gets too lucky.

Would you like to rub shoulders with them, or at least be recognised by them? If you do, don’t be like the rest of the crowd — don’t be a gambler. You should make a sober, level-headed assessment of your own chances and the chances of your business in a crisis. This will enable you to reach a safe place or be ready to fight in the face of this looming, ruthless steamroller.

Run uphill from a tsunami

In times of crisis, it is no easy task to resist the temptation to sell off what everyone else is selling or buy what everyone else is buying. Yet, right from the outset, you must protect yourself from public psychosis. You don’t know what to do? Then you’d better step aside. Don’t make decisions under the weight of what everyone else is doing or based on the predictions of hundreds of analysts. It is better to run uphill from a tsunami rather than stand there pondering whether to dive under the first wave or to get on your surfboard.

Economies can be affected by many things, including severe weather or meteorites… World market prices can soar or plummet because of the slightest accident at a nuclear power plant.

The list of all objective and subjective leverages affecting crises is endless. Nature provides some of them, but most of them are of our own making, waiting in the wings.

From what I saw, businesses crumbled in direct proportion to the currency collapse. In 1998, the Russian rouble depreciated against the US dollar from an average of six to 24 in a week. Over the following year, 75% of all market businesses crashed. In 2014, the exchange rate went from 30 to 60 roubles per dollar. Within two years, half of the businesses, i.e. more than 50% of the entire real market, vanished into oblivion.

Crises are said to be cyclical — I couldn’t agree more but only in the sense that they are bound to come back. The debate about how often they may come back and in what format is always interrupted by yet another crisis.

In my 25 years in business, I have lived through several painful banknote exchanges and rouble devaluations as well as a global property price collapse that reduced entrepreneurial activity by a factor of 1.5–2 times.

When looking for new markets or creating new products, we entrepreneurs can never account for all risks. An analysis of all the crises I have personally gone through suggests the following:

— a crisis always strikes suddenly, however hard you may have been on the watch for it or tried predicting its onset;

— business activity is brought to a standstill for an average of 1–3 years;

— crises are inevitably followed by business growth, which you must be prepared for if you survived;

— do whatever it takes to survive because it is next to impossible to bounce back from scratch. Even losing 90% of your business is still a lucky escape;

— there is no room for complacency, thinking that your business will be spared by the crisis;

— reinventing must be your first order of business.

Substitution or destitution?

“Now I am equipped for any economic eventuality,” I was saying to myself. “My business has been growing as much as 10% annually for ten years running, it has developed and become strong. Almost 300 employees make $20 million worth of products that are sold, among others, in export markets generating revenues in foreign currency; the warehouses are well stocked and there are still reserves of production capacities.”

I survived several crises, learnt a lot and thought I knew everything. And yet I could not foresee that my business would be on the brink of ruin, that there would be a question of either bankruptcy or survival…

Following the 2014 crisis, I had to close down a very profitable, modern company producing highly technical (specialty) glass.