Thanks to a decade of extremely low rates, M2 increases by the FED and similar movements by other central banks in the world. Some investors have forgotten about basic economic tenets, based on the mirage that basically all investments will generate yield. Many investors thought It’s all a matter of what generates more yield.
Either by design or natural market forces, bust cycles might follow certain condition changes. During these downtrends or bust cycles, investment takes a different approach. Moreover, spending management ought to take a different approach, a more conservative one. For starters, if conditions tighten and yields become more selective, large spending bills for more experimental approaches to growth and yield are discouraged. Conversely, basic fostering of the investments and spending habits within become more important while at the same time, keeping a healthy fund waiting to be deployed when only exceptional ideas, exceptional projects and exceptional efforts appear. In short, take a gander of the investors siting on big piles of cash when conditions worsen. Whether by insider information or by trade, keeping a well balance stable fund in turbulent conditions make it for when exceptional conditions appear.
It is no secret that the best moments to invest are when the whole market is depressed and when an idea is groundbreaking (also will have a long plateau of adoption and investment). So these moments are to be used in the best way possible to take the risks in the most measured manner possible.
What happens in Macro Doesn’t Matter
We have seen recently in real time what happens when investors stop paying attention to the macro environment. Recently, cheap money was created at historical levels but conditions have been tightened and yet many chose to disregard these signs in favor of previous spending and investing behaviors. After these conditions changed, investor behavior remained set on the past defaults of high spending, highly experimental investment and risky leverage waiting for these extraordinary returns that many enjoyed. Only to be faced with the uncertainty of markets and conditions.
Let’s take the events that triggered the current financial cycle, the COVID-19 pandemic and lockdowns, the Ukraine-Russia conflict, the Israel-Iran conflict and the global tariff war. All these events brought an economic earthquake that hasn’t yet unveiled its consequences but for one thing is certain, they’ve all brought an immense volatility to the market. When conditions for great experiments deteriorated, there were many eager investors who though would knew better and sought to mirror the isolated market successes that sprouted here and there. With Zoom and all Zoom-wannabees. With Solana and all Solana wannabees. With Circle and all Circle wannabees. Many think that by just copying the superficial attributes of said success stories, their product will follow the steps of the abovementioned stories. Or even worse, to ride the narrative ship if you will. Even worse, some go overboard with unnecessary expenses seeking to prompt the market into accepting the product while the tide is going in the other direction. We all can intuitively foresee the end result.
Treasury Management in the Downtrends
Going overboard with expenses when the market tides are in bearish territory can only lead to one result. It’s assumed that spending quick could lead to fast results, useful for the break things move fast territory but under uncertain and volatile circumstances this particular approach is a risky gamble. If you see that this approach has not yielded results, then you can safely revert back and take the most conservative approach instead.
Ideally speaking, the earned funds from successful investment exits should be used to increase the treasury and / or fund for the short and medium term when new investments yield happen or when old investments continue yielding returns either by the original investment or by doubling down on the same investment.
These simple rules will continue to be applicable as long as market forces exist, so new generations of investors and treasury managers heed the teachings of the market as it doesn’t do what you want it do to but what the market forces dictate.
