2016 taught us how to respond, not just react

One should look at disruption and volatility as opportunities to do things differently

Time is a relative parameter. The perspective of time changes with the industry. In the financial industry, especially with stocks, the market reacts to information in seconds, while in the automobile or any consumer-centric industry, any launch is planned after thoroughly studying the tastes and preferences of the end consumer. It entails a lengthy process from designing to prototyping and then taking it up for production that takes no less than one to two years. The former is called a reaction while the latter can be termed as response.
 
The major difference between earlier generations and the current one is the speed of dissemination of information. Earlier, it used to take hours or days for the information to reach all and sundry while it takes only a few seconds now. The responsibility is then on the decision maker to navigate through this maze of information and make a prudent decision out of the plethora of options available. Any decisions taken in a hurry without giving a complete thought will most likely yield undesired results. Therefore, while it is important to act on information, decisions should be well thought out keeping all aspects in mind as it would increase the probability of success.

 
A decision maker also has to have foresight and vision to see the future which is highly dynamic. These days, the lifecycle of consumer-centric products, say automobiles and electronic gadgets, is getting shorter as compared to earlier days. The taste of the consumer is changing rapidly, competition is catching up fast for any successful product like smartphones where options are available to the consumer from international and domestic players. Taking into consideration the uncertainty, volatility and rapid changes happening around, it makes sense for the decision maker to respond to the challenges rather than react. The future being uncertain as always, the decision maker has to incorporate a backup plan at all times to take care of the unexpected outcome. Take the example of PepsiCo, which responded to falling interest of consumers in aerated drinks by thoughtfully complimenting it with the launch of health/fruit drinks. Nokia lost its market leadership as it did not respond in time to the change in preferences of consumers from feature phones to smartphones. Given the disruptive nature of the dynamic world we are living in, an organisation has to be agile to respond to changes and innovative enough to lead the change.

 

If we look at financial markets, due to technological innovation, transactions have moved online to mobile/desktops of investors and traders. With the advent of social media, people are flooded with a plethora of news and analysis and that has considerable influence on the markets/stock price movements. The time gap between receipt of news, its analysis and execution in terms of stock price movement has been reduced to seconds which in turn has made the markets volatile. While short-term traders may need to quickly react to news, the long-term investor should respond taking cognisance of the impact of news on the fundamentals of the investment. As mentioned at the outset, the concept of time is relative; ask the importance of time to a trader who missed reacting to news and made losses on his positions on events like Brexit. Also, ask the importance of time to an investor who missed the opportunity to pick quality stocks that got battered down during the same events. But more than timing, the process of investing involves a thorough study of the company’s fundamentals. Long-term investors should rely on stocks with strong fundamentals and structural story and should not get too bothered with short-term ups or downs. As Warren Buffet says, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

 
“Change is the only constant” is more relevant than ever. In times of disruption and volatility, one should look at these as opportunities to do things differently and for the better. Embrace volatility and leverage it to outshine competition. Unless called for, one has to be mindful to respond to the situation taking into account a 360-degree approach and not just react.