On Chaos as Normal

A speculative party for the ages ended in the Spring of 2000, capping a sixty-eight year bull market in stocks. Quite abruptly, the bubble morphed into a Grand Supercycle bear market. So far,  a first leg down, bottoming in ’03,  led to a revisiting of the previous top in ’07,  which is a normal occurrence in a bear market of this degree. This rise was in sympathy with the misguided effort by Fed chairman Greenspan to keep the thing going. Instead, the gas (liquidity) he poured on the financial markets produced a great conflagration in the housing sector. Then came the 55% crash of the S&P 500 Index from August ’07 into March ’09. That was was the first real thrust in what should ultimately be a near total retracement of the Supercycle bull market which began in 1932. The reaction rally from the ’09 low up to the recent top sets the market up for a mammoth crash dead ahead. If you look closely at the chart below, you will see that Elliott Wave International is forecasting about a 70% collapse between now and the fall of 2012. Now, think for a moment about how the last four years have affected our lives.

That first scary  drop (’07-’09) plunged the nation into a severe recession. Hardly any business or profession went unscathed. For a while, the pessimism and hopelessness was total. Then the market started up and, over time, despair was replaced by hope. If you have a business, you might review your results over the last four years. Like as not, your business slowed considerably between ’08 and early 2010. Since then, however, things picked up and you might actually be very busy right now. You might even allow yourself to believe you’re back on track to the way things were a few years ago.

The Wave Principle says otherwise. Maybe a collapse of the forecasted magnitude won’t happen. But, if anything even close to an all out depression does take place, you should ask yourself if you are prepared to live in chaos and uncertainty for extended periods. This is the real question: are you organized to not only live in difficult cirumstances, but actually thrive in them?

Shortly after 9/11, Stanford professor/author Jim Collins (Good to Great, Built to Last) and colleague Morten Hansen began a project to find the answers to how some organizations have been able to keep growing and prospering during chaotic, disruptive times while many of  their peer companies went broke under the same circumstances.

The researchers wrote: “We began this book in 2002, when America awoke from its false sense of stability, safety, and wealth entitlement. The long running bull market crashed. The government budget surplus flipped back to deficits. The terrorist attacks of September 11, 2001, horrified and enraged people everywhere; and war followed. Meanwhile, throughout the world, technological change and global competition continued their relentless, disruptive march.”

Then they wrote: “To get at the question of how, we set out to find companies that started from a position of vulnerability, rose to become great companies with spectacular performance, and did so in unstable environments characterized by big forces, out of their control, fast moving, uncertain and potentially harmful.

Now, ten years after starting the project, Collins and Hansen have published the results. Their new book, Great by Choice, was released on October 11.

For some time, I’ve been on the lookout for information to help us function in the environment the Wave Principle anticipates. I’ve read and recommended Laurence Gonzales’ Deep Survival,  Seth Godin’s Poke the Box, and Anything You Want, the terrific story of the founding of CD Baby. All of these have much to offer, but Great by Choice is the precise thing I’ve been looking for: the model of exactly what to do to prepare for, and then flourish in whatever unanticipated chaotic circumstances that may arise. The book offers a SMaC (the authors’ acronym for Specific, Methodical and Consistent) recipe for operating in environments that are unknowable beforehand.

Perhaps the most interesting thing that is common to these companies is what they do before disaster strikes. All of them operate every single day on the premise that they will face near death experiences, even though they have no idea what those experiences might be.

Great by Choice is the book you want to study.





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