There is no correlation between the catalysts that caused the market disruption in 2008 and those responsible for the economic disruption that we are starting to see today. This simple fact has given me cause for reflection.

Risk/reward ratio

The single biggest challenge any ambitious business owner faces while growing their business is getting the risk/reward ratio correct. Too little risk assumption impacts adversely on growth while too much can lead to the failure of the business. The decision-making process is intrinsically intertwined with one’s perception of market conditions.

Simply put, risk appetite that manifests itself in various ways is always coloured by whether we feel we are in a good or bad market. As any reward is inherently future based, each decision to take risk today for future return is by its nature speculative. A sound decision today, however, may be brought into question by subsequent events.

People have made and lost fortunes by engaging in market speculation. The reality is that it is incredibly difficult (whether done by algorithm or by employing the analytical human mind).

The likelihood of market disruption can be crudely estimated (looking simply at the frequency of such market disruptions) but, as evidenced by the Covid-19 pandemic, not necessarily the cause or nature of the disruption.

Risk assumption takes various forms. Some lenders make a play for a great market share by offering higher-LTV products. Some lenders diversify into new products or areas.

All businesses must make important decisions about when and how to invest in their infrastructure. These decisions come with different risks. So how does a business owner confront this issue? How does one know when to sharpen the bull’s horns and when to stockpile for a period of hibernation?

There is no right answer. What I have learned in the 12 years since we started this business is that the best option (for us as a business) is to never do either.

Neither Bull nor Bear

Over the course of this last economic cycle we have watched as many of our competitors moved up the risk curve. We have had years where our growth and business levels were directly and negatively impacted. It takes discipline and a long-term view to not follow suit. We chose to be neither the Bull nor the Bear.

The solution to building a business in an uncertain world is, therefore, to look long term, to stay true to your core beliefs, and to not concern yourself with others. As we sit here together at the end of another economic cycle, let us not worry about timings but instead identify long-term opportunities and focus on fundamentals.

Joshua Elash, director, MT Finance