One of the toughest things to manage when you are in finance is exogenous shocks. These are elements that you have no control over. They happen out of the blue, but because they affect your portfolio, you are forced to make decisions.

One of the reasons I am running for Treasurer is that there will be rapid changes in finance in the next ten years that we haven’t seen before. Another is that we are seeing ripples in worldwide finance that are going to create waves that come ashore in Nevada in ways we do not expect. Operating a $12 billion dollar budget isn’t for rookies.

Here is the key thing. When things like this happen, if you haven’t been through rough waters before, it truly is your first rodeo, and you will be reactive rather than proactive. That leads to poorly formed decisions.

When the sea gets very wavy, inexperienced people will step back and let the wheel of the boat turn and twist. You might make it through the rough sea, but the big problem is that rough seas often create opportunities that you can take advantage of if you know where to look and how to act.

I remember when Long Term Capital Management blew up. It roiled interest rate markets. By roil, I mean all kinds of hedge funds and different entities started blowing out of positions. They needed to unload stuff, and they wanted to get liquid at any price. I had a big interest rate calendar spread position, and when that storm hit, I had to make a lot of quick decisions and adjust to the market.

That’s where opportunity lies if you need to be on the opposite side. You can set your price, lock in a favorable position, and once the seas calm down, the market will return to some sort of equilibrium.

When panic strikes, markets go too far. The same can happen when markets get frothy, though rising markets aren’t like falling markets in their intensity.

Another example is Covid. Who saw that coming?

During Covid, we had many startup investments that were targeting Big Finance. They were all affected by Covid in some way. One startup CEO called me. We started to chat, and they were looking at a big impact on their revenue projections and growth because of the economic shutdown.

That’s absolutely terrifying to a startup company. You cannot blame them for being fearful.

As a person who has traded through many, many fearful markets, not just the ones you might be able to search for in past financial headlines, fear is an incredibly powerful motivating emotion that causes adverse decision-making.

Both of us took a deep breath. Then I said, “Look, I invested in a company, but mostly I invested in you as a person. You are a great person. You will figure this out.”

The first step with exogenous economic shocks is find something to grab onto to steady the ship. In a market, it might be that some of your positioning looks pretty good. In startups, it is just to take a step back and look at the bigger picture. It’s having confidence in yourself.

My favorite line from the 2008-09 financial crisis was when someone asked economist John Cochrane what he would tell someone young about investing in the stock market with all hell breaking loose. He said, “You just got to buy everything half off.”

The next thing I did was tell this person that we were so happy with our investment, we’d write a check on the spot and invest again despite what was happening in the broader world.

In crazy markets, if you know you have a strong winning hand, sometimes the best thing to do is play that hand. Make it stronger. In this particular case, both the people starting the company and we as investors felt we had an outsize edge that the rest of the world didn’t see. We had data to back up our feelings.

Warren Buffett talks about this constantly. It is why Berkshire has always had a nice cash horde. If uncertainty enters the market and things crash, they can swoop in and pick up some bargains on things they have been tracking.

The next thing we did was math. In markets, it’s about risk/reward, your cash position, and if you can afford to do anything. You never want to be in a position of weakness where you have to unload stuff to raise cash. In startups, it’s about runway and growth. As long as your CAC<LTV, growth helps. As long as you can afford to plow money into growth for an extended period of time, which gives the company the chance to hit the milestones necessary forthe next round of investment, you aren’t on life support. The company is breathing and can weather a storm.

In this case, there was plenty of breathing room.

The CEO figured it out. The company grew and thrived.

With a lot of hands-on experience, you know the right questions to ask. You know the right way to step back and be objective about what is going on. Instead of being in perpetual crisis and offering up slogans, you can provide steady, calm, competent management and run through hurricanes rather than get tossed about by them.

In a Treasurer’s office, it is thinking about, and doing things like this.

I find people get extremely motivated by managers who remain calm and realistic during rough patches. Some managers try to appear calm, but instead, they are detached because they don’t actually understand the right questions to ask or which direction they should head to get away from the storm.

Learn more and support us here: JeffCarterNV.com

One of the toughest things to manage when you are in finance is exogenous shocks. These are elements that you have no control over. They happen out of the blue, but because they affect your portfolio, you are forced to make decisions.

One of the reasons I am running for Treasurer is that there will be rapid changes in finance in the next ten years that we haven’t seen before. Another is that we are seeing ripples in worldwide finance that are going to create waves that come ashore in Nevada in ways we do not expect. Operating a $12 billion dollar budget isn’t for rookies.

Here is the key thing. When things like this happen, if you haven’t been through rough waters before, it truly is your first rodeo, and you will be reactive rather than proactive. That leads to poorly formed decisions.

When the sea gets very wavy, inexperienced people will step back and let the wheel of the boat turn and twist. You might make it through the rough sea, but the big problem is that rough seas often create opportunities that you can take advantage of if you know where to look and how to act.

I remember when Long Term Capital Management blew up. It roiled interest rate markets. By roil, I mean all kinds of hedge funds and different entities started blowing out of positions. They needed to unload stuff, and they wanted to get liquid at any price. I had a big interest rate calendar spread position, and when that storm hit, I had to make a lot of quick decisions and adjust to the market.

That’s where opportunity lies if you need to be on the opposite side. You can set your price, lock in a favorable position, and once the seas calm down, the market will return to some sort of equilibrium.

When panic strikes, markets go too far. The same can happen when markets get frothy, though rising markets aren’t like falling markets in their intensity.

Another example is Covid. Who saw that coming?

During Covid, we had many startup investments that were targeting Big Finance. They were all affected by Covid in some way. One startup CEO called me. We started to chat, and they were looking at a big impact on their revenue projections and growth because of the economic shutdown.

That’s absolutely terrifying to a startup company. You cannot blame them for being fearful.

As a person who has traded through many, many fearful markets, not just the ones you might be able to search for in past financial headlines, fear is an incredibly powerful motivating emotion that causes adverse decision-making.

Both of us took a deep breath. Then I said, “Look, I invested in a company, but mostly I invested in you as a person. You are a great person. You will figure this out.”

The first step with exogenous economic shocks is find something to grab onto to steady the ship. In a market, it might be that some of your positioning looks pretty good. In startups, it is just to take a step back and look at the bigger picture. It’s having confidence in yourself.

My favorite line from the 2008-09 financial crisis was when someone asked economist John Cochrane what he would tell someone young about investing in the stock market with all hell breaking loose. He said, “You just got to buy everything half off.”

The next thing I did was tell this person that we were so happy with our investment, we’d write a check on the spot and invest again despite what was happening in the broader world.

In crazy markets, if you know you have a strong winning hand, sometimes the best thing to do is play that hand. Make it stronger. In this particular case, both the people starting the company and we as investors felt we had an outsize edge that the rest of the world didn’t see. We had data to back up our feelings.

Warren Buffett talks about this constantly. It is why Berkshire has always had a nice cash horde. If uncertainty enters the market and things crash, they can swoop in and pick up some bargains on things they have been tracking.

The next thing we did was math. In markets, it’s about risk/reward, your cash position, and if you can afford to do anything. You never want to be in a position of weakness where you have to unload stuff to raise cash. In startups, it’s about runway and growth. As long as your CAC<LTV, growth helps. As long as you can afford to plow money into growth for an extended period of time, which gives the company the chance to hit the milestones necessary forthe next round of investment, you aren’t on life support. The company is breathing and can weather a storm.

In this case, there was plenty of breathing room.

The CEO figured it out. The company grew and thrived.

With a lot of hands-on experience, you know the right questions to ask. You know the right way to step back and be objective about what is going on. Instead of being in perpetual crisis and offering up slogans, you can provide steady, calm, competent management and run through hurricanes rather than get tossed about by them.

In a Treasurer’s office, it is thinking about, and doing things like this.

I find people get extremely motivated by managers who remain calm and realistic during rough patches. Some managers try to appear calm, but instead, they are detached because they don’t actually understand the right questions to ask or which direction they should head to get away from the storm.

Learn more and support us here: JeffCarterNV.com