Several years ago I was walking down the street in Westport with a friend and passed a cigar bar that was overflowing with suits home from the City. My friend said, “If only I could figure out a way to short this.” He was right. Only the markets didn’t figure out until a decade later just how unsustainable these excesses were. Is it the fault of irresponsible banks, or irresponsible consumers and home buyers, or a Fed that veered from its charter into preserving market stability? It matters not. We who run and advise businesses must manage around the wreckage that is volatility.
So, how do we do that? The markets and the weather have reached new heights of volatility that confound even the best fund managers and meteorologists. We do that by realizing that volatility is the one thing we can count on. We must give up the illusion of our own predicting ability prowess. It’s no coincidence that quarterly earning estimates are becoming a thing of the past. Or that so many companies have gone private… to the place where business decisions can be made outside the spotlight of a street who excels at spreadsheets but can fail to appreciate what it takes to operationalize plans.
We who run and advise businesses must execute on plans presuming volatility at every turn. We must build in flexibility at every chance we can get. Presumed volatility must become a part of our enterprise risk management. It must become the way we manage every line item on the P&L. I call this going long volatility. Or shorting predictability.