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In The Media

Downturns

by Larry Chiang on December 27, 2019

By Larry Chiang

jason calacanis (@Jason)
At 49 I remember the 1987 crash, dotcom bust, 9/11 & Great Recession — so I’m gifted/cursed with a vigilance that whispers in my ear “any day now, it’s coming apart!”

What They Don’t teach you in school is how to deal with downturns. 

Three downturns…
1987 crash, 
– dotcom bust, 
– 9/11 & Great Recession. 
Dealing with a potential downturn…
-1- Keeping your powder, dry
This is slang for having cash on hand. Cash is not always king. But cash is king during a downturn. 
This balance is…
-2- Leverage. 
Overuse of leverage is when your asset position(s) are all borrowed upon and on. The opposite of cash is a position where your ass is hanging out in the wind. This is slang for “if the asset you’re mortgaged on does not appreciate at a vector greater than your cost of renting money, you’re screwed”
For example, an ARM (adjustable rate mortgage) where you also have a second mortgage. 
For example, where you’re “upside down on your car”. This is slang for you owe more than it’s worth. 
-3- ratios. 
The ratio that’s tantamount is money on hand versus money that’s owed. 
-4- Gravity. 
Gravity used to not have an exact formula. 
The problem with downturns is that they’re observed but impossible to specify. Downturns are inevitable. 
The reason downturns take away so much is that the general public saves zero money and overspends. This ratio is upset due to overconsumption. Gravity is the weight ratio between two celestial bodies. Are you gravitating towards my content at duck9. 
Deep Undergrad Capital Knowledge. 
It’s based in “credit” where you get a large line of credit but do not use that line of credit. 
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I call this last point gravity because spending more than you make is an invisible force. 
Treasure Management is my #Ch2. 

Timing is what wrecks people. There are 20 lectures that are #cs183vc and they all deal with timing. Curtailing spending is the most unpopular business tip. 

To bookend Jason with more @jason…

1. Don’t have debt

2. Have a low burn rate — as low as possible

3. If you own a business keep 12 months of capital in the bank at all time

4. When market corrects go into cockroach mode — keep the lights on, but cut costs to keep runway at 6-12 months

5. Be diversified


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