The bulletin was sent as a private communication to System Club members in 2005. It was published in the book “The System Club Letters” in 2008. This is the first time this article has appeared online.
About Liquidity (2005) – Ken McCarthy
“There are few things more unbalancing to the mind than the act of suddenly winning or losing large sums of money.” – Henry Howard Harper, The Psychology of Speculation
One of the best educations I ever got was the time I spent working on Wall Street. It was the roaring 80s and the market seemed invulnerable. It wasn’t and I was right there when the whole thing melted down. It made an impression on me.
Punch bowls, bubbles, and musical chairs
Most of the time, I focus on the particulars of running an Internet business and using the Internet to boost existing businesses. Today, I’d like to talk a little bit about money in the broader sense.
First my biases. I am extremely conservative financially. I am very positive about my ability to make money, but I am also very realistic about the vagaries of life.
The reality – as I see it – is that we are living in a period of extraordinary opportunity, especially for folks who know how to use the Internet to find and serve customers. One of the reasons I’ve poured so much effort into teaching in the last few years is, quite literally: “Now’s the time.” Now is the time to rack up cash – but keep in mind, it won’t always be this way.
We are currently experiencing a period of financial liquidity unlike anything ever seen before in the history of this country. Liquidity in this context simply means: There is a ton of money around right now. A TON.
Yes, we are good marketers and yes, we are good business people and yes, we work hard and yes, we have been clever, but we’re also profiting from the fact that the Central Banks of the world, especially our own, have been printing money like there is no tomorrow.
Well, there will be a tomorrow. There always is. At some point, the punch bowl will be taken away and the party will be over (at least until the next time.) If you’re old enough to have seen such a time, or you’ve read some history, you already know it’s not fun for the unprepared. So what do you do to prepare?
Suggestions for a happy landing
1. By all means, enjoy the party – especially the part that involves you aggressively making and salting away cash.
2. But don’t assume the entire reason you’re doing well is because you are: a) a financial genius or b) graced by God. The liquidity explosion has helped us all a lot by putting easy money in large quantities into our customers’ pockets.
3. Don’t be in a mad race to jack up your lifestyle to keep pace with your rising income. I’m not saying live in a hut and wear a burlap sack, but be ruthless about living like a normal person, not a player on a roll. The best things in life really are free, something frighteningly easy to forget when you’re on a spending spree.
4. Don’t make big long term bets on things that depend on: 1) cheap oil and 2) consumers having easy money coming out of their ears. I don’t have a crystal ball, but history says neither of these conditions are permanent.
5. Think musical chairs. In short, don’t be the guy who has so overextended himself on lifestyle enhancements and bubble investments that when the music stops, you’re one of the ones left without a chair.
You know the story of the Grasshopper and the Ant. And the Seven Years of Plenty and the Seven Years of Famine. There’s a reason those stories have been around for a long, long time. Let’s prosper together throughout the ups and downs of the business cycle, not just on one sunny turn of the wheel. History shows that people with perspective end up being the biggest winners in the money game.
P.S. This advice was originally sent by fax as a bulletin to every System Club member way back in 2005 when most advisors were telling their clients that the party would never end.
In contrast, graduates of the System Seminar and members of the System Club has received consistently realistic advice about what it takes to succeed in business, online and offline, in all kinds of economic climates.
P.P.S. Because of the demands of our other businesses (and our desire to have a little more time to enjoy life!), we’re no longer putting on the annual conference which ran from 1994 until 2011. The best way to keep up with the System is to get and read the books we publish and join the System Club.