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In a crisis – do nothing!

“For many of us, it’s decision time. What do we do with our investments? Do we sell our stocks? Rethink our retirement? With the warning lights flashing, our natural instinct is to react.
But that very moment, when the need to make a decision feels strongest, might very well be the time to do nothing at all. This holds true not only for investors facing a stock market crash, but for all of us in situations where there’s pressure to make a decision.”

Ori and Rom Brafman, The New York Times Weekly, Sunday Nation 19 October 2008

One of the most delightful developments of recent weeks was the decision by the Sunday Nation to include the New York Times Weekly as a special pullout every week. Kenyans now get the best of a world-famous paper, for no extra cost.

The Brafman duo excerpted here are giving very good advice: don’t make decisions when your blood pressure is high, when your pulse is racing, when the adrenalin is pumping. Life-and-death decisions should of course be made in those circumstances, but not things that can wait and will benefit from sober reflection.

Why? Because it’s like making a life-changing decision just because there’s an angry driver behind you, hooting loudly. We feel compelled to decide, but we will very likely make the wrong choice. Irrational behaviour is very likely to occur when we are under intense pressure. We will rush to diagnose the problem, with limited information; loss aversion will kick in, allowing fear to rule us; and group mania will take over – we will watch the herd stampeding and feel compelled to join in.

When the heat is on, take a timeout. Extract yourself from the immediacy of the situation, and allow your emotional temperature to come down. Get a good night’s sleep. Take a longer-term view of things. Cyclicality is part of human life: things do go down, but they also come back up. Taking a hatchet to your portfolio when the market is down could be the worst possible thing you do.

This impulsiveness is not confined to individuals. Over the years I have watched companies do very emotionally charged things. When it’s boom time, they will invest in irrational expansions and go on a spending spree. When a downturn hits, the boss will go a little crazy and run around the company shouting with a budget axe in his hand. The propensity of American companies to hire and fire is part of this insanity: innocent staff members are recruited unnecessarily in a boom, and shed ruthlessly in a downturn.

We are all facing an emotionally charged situation, individually and collectively. A global recession looms, and Kenya will not be spared its ravages. We are all feeling substantially poorer, and don’t quite know when the clouds will part. This is precisely the moment to keep your finger away from the red button.

Leadership is about setting standards. In a crisis, leaders must move to the front and calm things down. Tough decisions may need to be made, sure. But they must be made after due consideration and sober reflection. Don’t jerk your knee now – you may kick your own future where it hurts.

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