Paradigm Shifts for Business and Stock Investing Today

How should we respond to business and stock market conditions in July 2008? There have been difficult trading conditions in the past. However, the tragic succession of sub-prime crime, instances of regulator duplicity, flagrant violations of the Basel II norms, crippling shortfalls of farm produce, and ascendancy of oil-rich countries, make a deadly brew that we have not faced before.

Business mimics war. It is time to resort to financial planning in the way of a soldier under siege. Established methods will not work in extreme adversity. Retreat, charge, and attrition are three major options available when an enemy force threatens to over-run you. Guerrillas excel in emergency practices compared to organized armies, because they are more accustomed to making as much as possible out of scarce resources. How can battle-field survival principles be used in a Board room or on a stock trading screen?

You have to make every shot count when you are surrounded. No bullet should be wasted while you wait for reinforcements to arrive. Cash is your ammunition in today's business environment and stock market. Impose a zero budget discipline with immediate effect. Do not spend money merely because that is your habit. Question all expenses. Be wary of small-ticket items. They add up faster than people think. Similarly, clamp down on purchases on credit. You are at risk of failing to meet commitments that others have made on your behalf. Make sure that your receivables are real. Negotiate discounts to liquidate book assets early. Phase expenditure so that financial closure can be brought forward. Scale down mega projects. Involve your entire team in cash flow crisis control.

Women, children, food, and water are top concerns of a garrison facing disaster. You also need power, communications, and medicines. Tomorrow's post will be on how to deploy scarce cash.