Gains Are Found in the Highs and Lows

It is always insightful to see changes in the landscape. The feeling you get after a rain and seeing the flowers in full bloom. Being in the finance industry since 1985 I have gained much perspective (and a grey hair) in the highs and lows that come with investing. It is insightful as well to see the many changes that come when financial reforms are put into place. The feeling you get when you know the impact reforms will have on an industry will shift the balance of power.

During the meteoric rise of real estate values during the years of 2002-2007 it was insightful to see investors stumbling over themselves to scoop up houses to the tune of 20% annual appreciation. I had experienced the same unbridled consumption during my stock broker years in the 80’s. Movies like “Wall Street” glamorized the edginess of being on the inside and capitalizing on fast money. Stocks were the rage and hot-shot money managers had rock star status predicting the next up and coming, million dollar, over night trade. Stock investors were earning 200% gains on penny stocks, new technologies were making the medical stocks rocket and even sleeper industries like retail companies were growing double digits. All good things must come to an end and as the SEC tightened rules after the market crash in October 1987 the balance of power shifted into tighter trading reforms.

What impact will the current reforms have on business? Reforms make the system contract as new rules fall upon the players. Regulations act like filters to decrease the pace of expansion. Business loans will become harder to fund, both “stay afloat” loans and “business expansion” loans, as businesses collateral-backed assets dry up. With less money to lend business will need to become more innovative to survive. There is a natural selection in process. Businesses that fail were targeted by the system to fail. It is the way it is meant to be. As the business landscape changes there will be new and innovative “rock star” business that will thrive. Just like flowers after a rain they will bloom brightly for all to see.