Iron Versus Gold: Learning to Love Good Times and Bad Times
War time and Peace Time. Depressions and Boom Times.
I’ve thought alot about why militaries that are developed during times of peace tend to get wrecked in the beginning of the war. The generals who rise and run it during peace tend to be bureaucrats and politicians versus true warriors or strategists who only emerge when the S--t hits the fan. And you literally will not know until you go to war. This is why wargaming and stress testing is so important.
This is why I’m worried about investors who have only been through a bull market. Everything they learn only works when the market goes up. Risk tolerance goes up.They over-leverage themselves. Then the market turns and they get REKT. Badly.
This is the same with employees, especially software engineers who have only been in high demand coming out of school. They get their inevitable raises, keep making more money. Or if they have some small issue with the company they can literally move to another company in the same building and get a 20% raise. Entitlement grows, they fall into the Hedonistic Adoption treadmill where their cost structure goes up. The economy inevitably turns or more likely the programming language they use becomes outdated. If you don’t think this can happen, try asking any COBOL or BASIC programmer. I’m clearly not a programmer. But as an investor watching the rise of the No Code/Low Code movement, I do see a day when many programming jobs go the way of coal miners.
The skill sets useful for rising markets become major encumbrances in a falling one. And vice versa. I was listening to an interesting podcast talking about Iron versus Gold. During good times, gold is valuable as a signal of success and to flex. But during wartime Iron is far more useful as it can be turned into weapons, while Gold is pretty useless for forging weapons. There is a place and time for everything. The secret and key is knowing when to hold and use either one.
This is the iron law of cycles. What goes up, must come down. When times are good, you should still be testing and preparing yourself for the inevitable bad time. I don’t mean to be paranoid. Enjoy the good times and don't assume it will last forever. Always try to stay in the present and enjoy the moment.
Same with the bad times, know that it will not be forever. Squeeze whatever joy you can out of it. Be present and don’t overthink things. All you have to do is to make it through. If you do, you will have much to look forward to. No different than what I have been seeing in San Francisco these last few weeks. This last year was plain awful for the restaurant business with many shutting down. But for the best ones who have survived, business has come back very strong. Try going to brunch at Sweet Maple or Plow. The line is literally around the block.
We humans are built to be highly adaptable & resilient compared to most other species even though we hate and fight change. Embracing this and learning skill sets and mindsets to prepare for both up and downcycles will be critical for everyone. As US Army General Eric Shinseki said:“If you dislike change, you're going to dislike irrelevance even more.”