By Pip Kean, Cambridge Partners Principal and Financial Adviser
Benjamin Roth was a lawyer in Youngstown, Ohio, when the stock market crashed in 1929. Two years later he decided to keep a diary to detail the effects that the financial collapse had on himself, his neighbours, and the nation. He kept his diary for ten years. In the late 1930s, when the depression had mostly passed, he summarised a few points he had learned from the experience.
He wrote: “Business will always come back. It will remain neither depressed nor exalted…. Depression is a time of greatest profit. The investor who has liquid funds and the courage to act can lay the basis for great profits.”
Whether a depression or recession, some businesses will fail. They could be businesses chasing unprofitable objectives, or overloaded with debt, or suffering from poor management.
A mere week after the COVID-19 lockdown, Bauer Media announced it was closing its New Zealand business. Bauer had indicated for some time that they were facing challenges around the viability of their operations. The decision was made at the same time as the pandemic but was not because of it.
Another media institution, NZME’s Radio Sport, abruptly ceased broadcasting on 30 March this year. The fact is that Radio Sport had been balancing on a fiscal knife edge for most of its existence.
In February, NZME chose not to renew the rights to broadcast live cricket commentary, which revealed the vulnerable position the station was already in.
The fact is some businesses will fail while some businesses will ride out the storm and come through the other side stronger. Entrepreneurs and start-ups will emerge with new ideas and innovations. For instance, following the 2008 crash, startups like Uber, Airbnb and WhatsApp appeared. We also have Kiwi successes – such as Xero, Rocket Lab and PowerbyProxi.
The trading of goods and resources has never gone out of business, and the fact is, it never will. Throughout every crisis in history, business has survived and thrived every time; Covid-19 is no different.
It was true in the 1930’s and it’s just as true today: “Whilst any business can go out of business. Business itself will never go out of business.”
Sources: Consilium, Stuff & NZ Herald