Page 5 - MS Year in Review 2020

One of them was a residential real estate firm based in San Francisco. Prior to

Volker raising the interest rate, I had been engaged by the CEO to help him
professionalize the management of the firm. In the summer before the rise of
interest rate, the CEO told me that historically in residential real estate “there are

two good years, two ‘OK’ years, and one bad year out of every five.” He also said
that the past several years had been good, and asked me if I thought it would be
useful to do some contingency planning for “the next downturn” as part of our on-

going strategic planning process that I was facilitating for the firm. I agreed and we
did a daylong contingency planning session early in early 1980 just before Paul

Volker raised the interest rate in 1981 to an unimaginable 21%! That rise in rates
caused the housing market to crash. As I recall, we planned for different scenarios
of the market for residential housing: a “normal market,” a “down market” and a

“catastrophic market.” When the market crashed, we continued the planning
process and the plan for the “catastrophic market” became our most optimistic

plan!

As I recall, the firm lost money during the early months of 1981, but there was no
panic by the CEO or his management team, who simply worked the plan. By the
end of 1981, the firm had recovered and according to the CEO “we actually made

more money for the year as a whole than we had in our entire history.”

My lesson was the same as that articulated by the late Dwight D. Eisenhower (who
was both the Supreme Commander in Chief of Allied Forces during WW II and later

President of the United States) said in discussion planning for the Allied invasion of
Normandy: “Plans are nothing. Planning is everything.”

THE GHOST OF THE “BLACK MONDAY” STOCK

MARKET CRASH OF 1987

Prior to the current stock market decline, the “Black Monday” Stock Market crash of
1987 was one of the worst in US history. At that time, I was working as an

organizational development consultant with a firm headquartered in Kansas City
now known as American Century Investments (“American Century”). I was actually

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