Sunday 30th October, 2005


Long-term health depends on performance

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In a recent article in the McKinsey Quarterly, there is a new metaphor in the business lexicon. It is Performance and Health. It purports that businesses, like people, will have unhealthy lives if they fail to abide by long-standing, wholesome habits.

We have been talking these past weeks about an average increasing longevity of the human population, a surfacing of economic problems dealing with capital flight, and business models that impact our ability to rise out of the dust, into financial independence.

Indeed, according to McKinsey: The fact that ten of the largest 15 bankruptcies in history have occurred since 2001 is a strong deterrent to business building, playing up its inherent risks.

For those individuals who have established a firm foundation in securing income replacement, health insurance and three separate pensions (one pension cheque will never do), and who now look to the financial markets for high-end investment return, to rise to the challenges of longevity, this is alarming!

Certainly the best advice in the stock market investments arena is the buy and hold strategy. Day trading is, more than anything else, a fad, and has led to tumultuous misfortune, rather than grand empires; always remember: Rome wasn’t built in a day.

What Mckinsey had to say is instructive indeed: One major European financial-services company recently discovered how easy it is for performance and health to get out of balance.

After the company had achieved an impressive turnaround in its short-term financial performance in the three years to 2004, it found to its dismay that this success had been accompanied by falling customer service levels, a huge increase in staff turnover, and a fall in its share price.

Management complained that the financial markets didn’t understand what the company had achieved. But in reality, they understood all too well, that its short-term success had been purchased at the expense of its underlying health.

Such short-sighted behaviour is widespread. In one recent survey, a majority of the managers polled said that they would forgo an investment offering a decent return on capital if it meant missing their quarterly earning expectations.

So while in the business jargon, stretch objectives are the order of the day, remember that even elastic can be over-stretched, and loose its tension. In the case of underwear that may be exceedingly comfortable, but definitely not so, when we have invested our money in the business stock.

Our role as individual investors therefore must be a loud call for corporate probity and better governance. This is what is now being called leading from behind.

And while that is going on in the corporate world, as individuals, our personal financial health also needs stocktaking!

Like the health of the human body, our financial health may appear good, on the surface or in the short term, but our habits and lifestyle, may be doing serious damage to our ability to prosper in the long term.

I always say that modern medicine will keep us alive, but modern medicine has not made any major breakthrough in curing disease.

But it is more likely that we will die later, rather than sooner from the disease. We are more likely to live longer and be disease ridden, and popping pills, or connected to oxygen machines in motorised wheel chairs, then otherwise.

As the South African, Dr Marius Barnard, of the first heart transplant team, has said, “As doctors we will replace your kidneys, but we will completely remove your savings!”

So, on the individual level, long-term health is dependant on financial performance, or what is the same thing, your ability to pay.

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