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I recall conversations with some uber-rich individuals in those dark, early days of the financial crisis, and I was struck by their pessimism. These people didn

by gdubs 8y ago

I recall conversations with some uber-rich individuals in those dark, early days of the financial crisis, and I was struck by their pessimism. These people didn't have their money in Lehman, and yea they took a huge haircut in the stock market – but they were still insanely wealthy. And yet, the news of the day put a rain cloud over their heads and they started making emotionally-fueled decisions about tightening up on this investment, or that investment... And then, on the other hand, there were a few folks who saw it as a massive opportunity, who fully expected things to recover even if it took a while, and – this is key – didn't radically change their approach to things. Guess who did better? The piece of advice that really stands out in this article is "have a safety net, ideally one year's worth of expenses." Advice that's good for any of us. I have friends in the music industry, and there's been a few instances of people getting these really big advances. Then come the big, expensive sushi dinners, flashy parties, etc. It looks like the record company is picking up the check... but not really. The artist is on the hook. I think there's a lesson there for startup founders too. If the fundamentals aren't there, it can be hidden by a lot of frothy cash floating around. That cash can be addictive, and people get used to a certain quality of life. Retaining control means knowing when to say no to taking on more than you actually need. If you let money people inflate your balloon further than it should go because they need a huge balloon to pass along to someone else, ask yourself whether it's really good for your company.

paganel 8y ago
> And yet, the news of the day put a rain cloud over their heads and they started making emotionally-fueled decisions about tightening up on this investment, or that investment... I remember having read that at one moment in late September 2008 the US Secretary of Treasury Hank Paulson had kneeled in front of a room of big-bank CEOs begging them to do I don’t remember exactly what (I’m on mobile, too lazy to look for the exact reference). Also, the money market rates had dropped bellow 0% for the first time in recorded modern capitalist memory, an event that lots of economists had said that it wouldn’t ever happen. These are the two main apocalyptic-like events that I remember back from those days, there were many others, and I’d say that we were pretty damn close to a very deep and ugly financial black hole. As such I don’t blame those people who took the safe way out back in those days, I mean, I’m sure there were also people who hang on to their investments back in 1930 or 1931 thinking that the worse was over but we don’t read any happy stories about them because most probably there were none.
- gdubs 8y ago
  HBO's "Too Big to Fail" has that moment with Paulson – and a lot of great actors in it. Really captures the trauma of that period. Fair point – I was recalling the time after the 'crisis' and what we'd now call the bottom / beginning of the recovery. Probably early 2009.
  - paganel 8y ago
    > HBO's "Too Big to Fail" has that moment with Paulson – and a lot of great actors in it. Really captures the trauma of that period. Thanks, I’ll give it a shot. Yeah, those were some crazy times, I’m glad that we’re here writing about the winners, the alternative was much worse.
- mooreds 8y ago
  >I mean, I’m sure there were also people who hang on to their investments back in 1930 or 1931 thinking that the worse was over C'mon, you just had to wait a few years: https://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html https://www.nytimes.com/2009/04/26/your-money/stocks-and-bon... (note when that was published! Near the low point of the 2008 stock market; Mar 5 2009 was the low point for the Dow.)
  - paganel 8y ago
    I know about that 1936 rebound (that was followed by a mini-recession soon after, if I’m not mistaken) but I think a lot of wealth had “evaporated” in the preceding 6-7 years and a lot of former wealthy people had become bankrupt, it was not that easy to just “hold on” for a few more years. Later edit: You can also make the case that the 1929 crash paved the way for an entire class of investors to be physically wiped out about 10 years later, I’m talking about how that economic crisis helped Hitler come to power and about the subsequent physical elimination of most of the European Jews. All I’m saying is that sometimes the apocalyptic estimations really do become true.
    - Yoric 8y ago
ummonk 8y ago
>Retaining control means knowing when to say no to taking on more than you actually need. Isn't the lesson the opposite though? When easy funding is available, take on more funding than you need and then don't spend it, so that you have plenty of reserve when things get tight.
- pdevine 8y ago
  There’s a timing problem with this approach, when you get the money vs when the investor expects a return. The investor usually wants clear indications of what you’re doing with the cash to increase their investment. Holding it generally doesn’t sit well with investors as they could have given it to someone who would be doing things with it.
- shimon 8y ago
  I assume that OP meant saying no to taking on more expenses / ongoing obligations than you need, not funding reserves.
TomK32 8y ago
Early? Read The Big Short and you'll change your opinion about when that crisis started.
- gdubs 8y ago
  I’ve read the Big Short, not sure I get your point?
charlesdm 8y ago
> I have friends in the music industry, and there's been a few instances of people getting these really big advances. Then come the big, expensive sushi dinners, flashy parties, etc. It looks like the record company is picking up the check... but not really. The artist is on the hook. What is reasonably big? Any artist with half a brain would put that entire cheque into other investments.
- MrFantastic 8y ago
  Most musicians don't come from money and most schools don't teach basic finance. Most people blow windfalls of cash.

by gdubs 8y ago

paganel 8y ago

> And yet, the news of the day put a rain cloud over their heads and they started making emotionally-fueled decisions about tightening up on this investment, or that investment... I remember having read that at one moment in late September 2008 the US Secretary of Treasury Hank Paulson had kneeled in front of a room of big-bank CEOs begging them to do I don’t remember exactly what (I’m on mobile, too lazy to look for the exact reference). Also, the money market rates had dropped bellow 0% for the first time in recorded modern capitalist memory, an event that lots of economists had said that it wouldn’t ever happen. These are the two main apocalyptic-like events that I remember back from those days, there were many others, and I’d say that we were pretty damn close to a very deep and ugly financial black hole. As such I don’t blame those people who took the safe way out back in those days, I mean, I’m sure there were also people who hang on to their investments back in 1930 or 1931 thinking that the worse was over but we don’t read any happy stories about them because most probably there were none.

gdubs 8y ago
HBO's "Too Big to Fail" has that moment with Paulson – and a lot of great actors in it. Really captures the trauma of that period. Fair point – I was recalling the time after the 'crisis' and what we'd now call the bottom / beginning of the recovery. Probably early 2009.
- paganel 8y ago
  > HBO's "Too Big to Fail" has that moment with Paulson – and a lot of great actors in it. Really captures the trauma of that period. Thanks, I’ll give it a shot. Yeah, those were some crazy times, I’m glad that we’re here writing about the winners, the alternative was much worse.
mooreds 8y ago
>I mean, I’m sure there were also people who hang on to their investments back in 1930 or 1931 thinking that the worse was over C'mon, you just had to wait a few years: https://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html https://www.nytimes.com/2009/04/26/your-money/stocks-and-bon... (note when that was published! Near the low point of the 2008 stock market; Mar 5 2009 was the low point for the Dow.)
- paganel 8y ago
  I know about that 1936 rebound (that was followed by a mini-recession soon after, if I’m not mistaken) but I think a lot of wealth had “evaporated” in the preceding 6-7 years and a lot of former wealthy people had become bankrupt, it was not that easy to just “hold on” for a few more years. Later edit: You can also make the case that the 1929 crash paved the way for an entire class of investors to be physically wiped out about 10 years later, I’m talking about how that economic crisis helped Hitler come to power and about the subsequent physical elimination of most of the European Jews. All I’m saying is that sometimes the apocalyptic estimations really do become true.
  - Yoric 8y ago

ummonk 8y ago

>Retaining control means knowing when to say no to taking on more than you actually need. Isn't the lesson the opposite though? When easy funding is available, take on more funding than you need and then don't spend it, so that you have plenty of reserve when things get tight.

pdevine 8y ago
There’s a timing problem with this approach, when you get the money vs when the investor expects a return. The investor usually wants clear indications of what you’re doing with the cash to increase their investment. Holding it generally doesn’t sit well with investors as they could have given it to someone who would be doing things with it.
shimon 8y ago
I assume that OP meant saying no to taking on more expenses / ongoing obligations than you need, not funding reserves.

TomK32 8y ago

Early? Read The Big Short and you'll change your opinion about when that crisis started.

gdubs 8y ago
I’ve read the Big Short, not sure I get your point?

charlesdm 8y ago

> I have friends in the music industry, and there's been a few instances of people getting these really big advances. Then come the big, expensive sushi dinners, flashy parties, etc. It looks like the record company is picking up the check... but not really. The artist is on the hook. What is reasonably big? Any artist with half a brain would put that entire cheque into other investments.

MrFantastic 8y ago
Most musicians don't come from money and most schools don't teach basic finance. Most people blow windfalls of cash.