It differs in every respect from Panic.
It is not a sudden and furious gust breaking on a peaceful situation, irrational both in its onset and in its passing away, but something which can be foreseen, and ought to be foreseen, by any prudent voyager on the waters of business. The wise mariner will furl his sails before the winds blow too strong.
Nor is depression in itself a disaster. It is merely the wholesome corrective which Nature applies to the swollen periods of the world's affairs. As with trade and commerce, so with the individual.
The high-spirited man pays for his hours of elation and optimism, when every prospect seems to be open to him and the sunshine of life a thing which will last for ever, by corresponding states of reaction and gloom, when the whole universe seems to be involved in a conspiracy against his welfare. The process is a salutary if not a pleasant one—and has been applied remorsely ever since Jeshurun waxed fat and kicked.
So it is with the volume of the world's business. However well men may try to balance the trend of affairs so as to produce a normal relation between the output and the needs of humanity, the natural laws do not cease to operate in a rhythmic alternation between the high prices which stimulate production and the glut of goods which overtakes the demand of the market and breaks the price.
But this change in the sequence from boom to depression is not an unmixed evil.
Prosperity spells extravagance in production. While the good times endure, there is no sufficient incentive either to economy or to invention. A concern which is selling goods at a high profit as fast as it can make them will not trouble to manage its affairs on strict economic lines. It is when the pinch begins to be felt that men will investigate with relentless zeal their whole method of production, will welcome every procedure which reduces cost, and seek for every new invention which promises an economy. Depression is the purge of business. The lean years abolish the adipose deposit of prosperity. The athlete is once more trained down fine for the battle.
Men who realise these facts will not, therefore, grumble overmuch at bad times.
They will, at least, have had the sense to see that those times were bound to come, and have refused to believe that they had entered into a perpetual paradise of high prices. In this respect free will makes the individual superior to the alternations of the market. He, at least, is not compelled to be always either exalted or depressed. If he cannot be the master of the market, he is, at least, master of his own fate.
How, then, should men deal with the alternate cycles of flourishing and declining trade? There is a celebrated dictum, "Sell on arising market, buy on a falling one." That man will be safest who will reject this time-worn theory, or will only accept it with profound modifications. The advice I tender on this subject is as applicable to Throgmorton Street as it is good for Mincing Lane. The danger of the dictum is that it commits the believer to rowing for ever against the tide.
Let us take the case of buying on a falling market. That a man should abstain from all buying transactions while the market is falling is an absurd proposition.
But it is none the less true in the main that such a course is a mistaken one. The machinery of his industry must, of course, be kept in motion, or it will rust and cease to be able to move in better times. But it is unwise to embark on new enterprises and commitments when commerce, finance, and industry are all stagnant. And very frequently buying on a falling market means just this.
It is like sowing in the depths of winter seeds which would mature just as well if they were sown in March. No; it is when the tide has definitely turned that new enterprises should be undertaken. The iron frost is then broken, and the sower may go out to scatter in the spring-time seeds which will bring in their harvest.
To buy before the turn is to incur the cost of carrying stocks for many unnecessary months.
The converse of the proposition is to sell on a rising market. Certainly. Sell on a rising market, but do not stop selling because the market ceases to rise. A great part of the art of business is the selling capacity and the organisation of sales, but to carry out a preordained system of selling on an abstract theory is mere folly.
To cease selling just because the market is not rising at a given moment, and to wait for a better day—which may not dawn—is to burden a firm unduly with the carrying of stocks and commodities.
There is a saying in Canada, "Go, while the going is good." The phrase—an invitation to sell—finds its origin in the state of the roads. When the winter is making, the roads are hard and smooth for sleighing, and are kept so by the continual fresh falls of snow, and you can speed swiftly over the firm surface.
But when the winter is breaking, the falls of snow cease, and the sleigh leaps with a crash and a bump over great gullies, tossing the traveller from side to side and dashing his head against the dashboard. These depressions are called "thank you marms," because that is the ejaculation with which the victim informs his companions that he has recovered his equanimity. The man who will never sell on a falling market is the man who will not face the "thank you marms." He will "go while the going is good," but he will not accept the corollary to the dictum, "But don't stop because going is bad." He has not the nerve to face the bump and come up smiling. Don't be afraid to sell on a falling market, or you will be afraid to sell at all until you are forced to sell at far lower prices because of the weight of stocks or commitments which must be liquidated at any cost. It is precisely in time of depression that the men of business ought to press their selling and organise their sales organisation to the utmost limit. If finance, commerce, and industry could only be persuaded to take this course in the slack times, then every action in this direction would cure the evil by lessening the duration of the bad times. Not till the surplus stocks have been unloaded will the winter pass and the summer come again in the enterprise of the world. Selling is the final cure for depression.
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