IN THE 30 years or so that I've been running businesses, I've noticed that consumer sentiment is not only powerful but it is often created by a cultural environment rather than what is actually happening in folks' lives.
It seems that many people get pulled along with the general vibe instead of forming their own views.
This can work in favour of over-exuberance or it can create gloom. So positive sentiment can encourage thousands of amateur investors to buy "dotcom" stocks at highly inflated prices, or negative emotion can undercut a stock market, so that even 10 quarters of good results fail to impress investors.
We're currently in one of the negative phases where the headlines are filled with pessimistic stories and we're more than happy to absorb the sentiment, make it our own.
But there's another way to treat the "bad" economic news and that is to see a free market economy as something that moves in cycles, which forces the constant revision and reinvention of just about everything.
An example I've been watching closely has been the financial troubles of the Darrell Lea chocolate and lolly brand, which has been in administration. I don't want to give the impression that a business being unable to pay its bills and having to let go of 418 people is a good thing. But there is a positive to the story, and that is that the system works well enough for a new owner to step in and buy Darrell Lea and reinvent what that business does.
The buyer, VIP pet food owner Tony Quinn, told a Brisbane newspaper: "Let's have some fun. Let's fix this thing." That's the reinvention effect of our economic system - that's a business brain that knows how to see the positives in a negative.
The signs of positives defying the negative are all around us.
Yes, Kodak went out of business, but other companies have reinvented personal photography, ensuring we can all afford a good camera and that we can choose which pictures we want printed. And Australian steel-making may be under pressure, but there was OneSteel, quietly making itself a miner of iron ore, not letting itself be forced into irrelevance.
Australian business owners and householders can train themselves to think this way as well - it isn't just the domain of the entrepreneurs and the professional managers.
If you own a business that has slack sales, there is a way forward: you just haven't found it yet. It may be as simple as rethinking what you sell, what you make, how you present yourself.
It's the same in households. What might be an uncertain economic system in some people's minds is actually flexibility for another person. The ability to up-skill, find another job, reinvent yourself as a different proposition to an employer, has never been better. You just have to start by seeing opportunity rather than doom.
Take the uncertainty created by the European crisis and the US slowdown. It has played on our minds and held back our own economy. But one of the benefits has been a cash rate which - at 3.5 per cent - is in the lowest range of the past 20 years.
Don't be tempted to whine when you have interest rates like this - ask any baby boomer, who was paying 19 per cent on their first mortgage.
There are many people suffering right now, but to those who are not - but are thinking negatively, anyway - have a look behind some of the negative economic stories, see where you really sit. Inflation ran at about 1.2 per cent for the year to June, and the wage price index was sitting at 3.6 per cent. So wages are increasing at a greater rate than inflation is acting on the price of general goods and services.
That isn't bad, especially taken with a low unemployment rate of 5.2 per cent in July. It doesn't look exactly gloomy when compared with the US at 8.3 per cent, or the EU at 10.4 per cent unemployment in July.
And in a country where we all need a car, they are more affordable than they've been for a long time. The Allianz company's research showed that a Ford Falcon in 1960 cost a man 60 weeks' pay while in 2012 it cost 30 weeks' average male pay.
The economy will cause more businesses to close or to contract - there's nothing we can do about that. But the important part is what happens next, who sees it differently? And in your own life, are you keeping your eyes open, preparing yourself for what happens next?
A market economy always provides the chance to start again. What's your reinvention?
Mark Bouris is executive chairman of Yellow Brick Road Wealth Management, ybr.com.au. Follow Mark on Twitter at @markbouris.
Frequently Asked Questions about this Article…
What does 'market reinvention' mean for everyday investors?
Market reinvention means free‑market cycles force businesses and people to constantly revise what they do. For investors it’s a reminder that painful headlines can create opportunities — companies can be bought, reshaped or replaced (the article cites Darrell Lea being bought and reinvented and Kodak’s exit but broader reinvention in photography). Seeing reinvention helps investors look for where value can emerge after disruption.
How should I interpret negative economic headlines when making investment decisions?
Don’t let negative headlines dictate your view. The article argues consumer sentiment is often a cultural vibe rather than reality. Instead, look behind the headlines, check fundamentals and economic indicators, and consider that downturns often create chances for new owners and businesses to reinvent themselves.
What real-life examples in the article illustrate business reinvention?
The article highlights Darrell Lea’s administration and subsequent purchase by Tony Quinn (VIP pet food owner) as an example of reinvention. It also mentions Kodak’s exit from its old business and how other companies reinvented personal photography, plus OneSteel shifting into iron ore — all examples of businesses adapting or being replaced.
How do current interest rates and cash rate levels affect investors and households?
The article notes a cash rate of 3.5%, one of the lowest ranges in 20 years. Low interest rates can make borrowing and investing cheaper and are presented as a benefit to households and investors — a contrast to much higher historical rates (the article reminds readers baby boomers once paid around 19% on mortgages).
Which economic indicators in the article suggest the economy isn't as gloomy as headlines imply?
Key figures cited include inflation at about 1.2% for the year to June, a wage price index around 3.6% (wages rising faster than inflation), and unemployment at 5.2% in July — all used in the article to argue that the domestic economy looks better than some negative stories suggest (compared with US 8.3% and EU 10.4% unemployment in July).
What practical steps can small business owners take to 'reinvent' their business according to the article?
The article suggests rethinking what you sell, what you make and how you present yourself. If sales are slack, explore new product or service ideas, change your presentation or target market, or find a different way to operate — the point is to look for fresh angles rather than accept doom.
How can households adapt or 'reinvent' themselves in a changing economy?
Households can treat economic uncertainty as flexibility: upskill, look for new jobs, reposition your value to employers and prepare for transitions. The author encourages seeing opportunity rather than panic and checking where you personally sit behind broad negative stories.
Does the article recommend panicking over global issues like the European crisis or US slowdown?
No. The article says those global worries have affected sentiment and held back the domestic economy, but they’ve also delivered benefits like a low cash rate. The recommendation is to keep your eyes open for opportunities created by market cycles rather than panic.
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