Turn Economic Downturn into Investment Opportunity Like a Billionaire
Companies / Investing 2009 Jan 23, 2009 - 03:32 PM GMTBy: Q1_Publishing
Do you know what a Model T is?
Of course you do. Who doesn't? It's the car that put America on wheels. It was the product of some of the greatest manufacturing innovations. It changed the world.
Do you know what a DA Master is?
Unless you're a classic car fan, probably not. It's one of America's many forgotten cars. However, the story of the DA Master can teach us a lot right now. One of the most important lessons is how to invest successfully when the economy looks downright depressing.
You see, the DA Master was Chevrolet's top seller in 1934. It was a huge success. Sales of the car pushed General Motors (owner of Chevrolet) into the #1 spot for U.S. automakers.
Here's the thing, GM didn't necessarily make better cars during the Depression. GM didn't charge any significantly lower amount. The difference was GM didn't stop marketing its cars aggressively.
GM stayed in front of the eyes of its customers throughout the Depression. As a result, GM jumped ahead of Ford during the Depression. Not long before the DA Master showed up in car lots, GM was outsold by Ford 10-to-1. The Depression played a key role in helping it jump ahead of Ford America's leading carmaker for more than 70 years.
Darwinian Economics
GM didn't just survive, it thrived. It grew market share which it would reap greater rewards for when the market did return.
It wasn't all just marketing though. GM's legendary chief, Alfred Sloan, revolutionized the management of the company.
In Industrial Revolution in America , authors Kevin Hillstrom and Laurie Collier Hillstrom note:
'Along with AT&T, Coca-Cola, and a few of the railroads, [GM] was a gleaming example of business progress against the ravages of hard times,' observed one historian, ‘Whatever Henry Ford had done to turn his factory floor into a model of efficiency, Alfred Sloan superseded by creating the optimum office environment. Sloan honed management charts until they flowed in only one direction, toward the creation of a motivated workforce. As a result, GM's organization was studied and then copied by thousands of corporations around the world, but no one could copy Ford's organization – there wasn't one.'
Under Sloan's watch, GM made it through the entire Great Depression without a single losing year .
It wasn't just a few big carmakers which managed to make the best of a bad situation. It happened all across America and to many of today's leading companies.
When Life Hands You Lemons…
One glaring example of someone who laid the foundation for huge success during the Depression was in the cereal industry.
C.W. Post founded the company with his own name (Post Cereals which would go on to become General Mills) in the 1890's. He was a patient/guest at the Battle Creek Sanitarium in Michigan which was operated by the Kellogg brothers. By accident one day, they produced a dried, flaky creation to serve during breakfast.
Corn flakes were born.
Post took the idea and sold it around the country while the Kellogg's stayed at the sanitarium. After a falling out with his brother, the W.K. Kellogg went on to sell Kellogg's Corn Flakes with his signature (that's why Kellogg's has a cursive brand name) as the “original” corn flakes.
Post had a decade head start and led the industry for many years. That is…until the Great Depression hit. Post cut its ad budgets while Kellogg was ramping up its ad spending. By the end of the Depression, Kellogg was number one.
If you think about it, most of the truly iconic American corporations were founded during hard times.
The Panic of 1873 kicked off the original Great Depression (which it was known as until the world rose out of the 1930's Depression). The failure of the leading North American investment banking firm, Jay Cooke & Company, sparked one of the worst economic downswings in history (eerily similar – I know). The downturn lasted 23 years. Five years after Panic, with the country mired in depression, the Edison Electric Light Company was founded. Edison's company grew into General Electric (NYSE:GE) .
The Tabulating Machine Company, the company which would become IBM (NYSE:IBM) , was founded during the late 1890's recession shortly after the (then) mighty Reading Railroad failed. Microsoft (Nasdaq:MSFT) was founded in 1975. In 1940, the first McDonald's (NYSE:MCD) opened up in California.
The list goes on and on, but you get the point.
Downturn = Opportunity
These business leaders jumped on opportunity when everyone else was running for cover. They trounced their competition by innovating and not holding back when it came to ensuring their customers didn't forget about them.
Right now, things look bleak. Even the President is warning, “It's going to get worse before it gets better.” I agree and we're not at the end of this - by far.
There will be more businesses which disappear. That also means competition for many businesses making the right moves now will go away as well. The strong, well-run businesses will be left behind in an even more dominant position.
There will be more volatility in the markets. Adept traders will make a fortune (I personally was buying stocks hours after Obama took over the White House), but there will be even greater opportunities for investors who make the right choices over the next year or two.
In the next Prosperity Dispatch , we'll take a look at the companies making the right moves to survive and then thrive during the current situation. The next Sloans, Edisons, Gates, Watsons (of IBM, not Alexander Bell's assistant), and McDonalds are out there. All of them stood up in the face of economic challenges to achieve true financial independence (they'd all be billionaires many times in current dollars). Now is the time when they stand out and you can invest with them at very good prices.
Although it doesn't always seem like it, right now is the time when the seeds of wealth are planted. There will come a time to harvest eventually.
Good investing,
Andrew Mickey
Chief Investment Strategist, Q1 Publishing
Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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