A large group of family and friends went to dinner last night. Two separate conversations got me thinking. One of the conversations was started by a financial services manager who was dreading the upcoming budget season because it always led to staff downsizings during the 4th quarter. The other conversation was about investing in equities when the market blew down – and now with stronger balance sheets which companies might be good portfolio adds.

Assuming every company is going to be somewhat revenue challenged for a while, what I think I want to see is a focus on Preservation & Growth of Assets vs. a focus on Preservation & Growth of Profits. Profits are important but if they’re growing because the assets are shrinking (human or capital) that’s likely a short-term win. I want long-term wins and if a company is building while everyone else is retreating they’re going to better poised for faster top line growth when the economy does turn around.

I want a team that knows how to invest……
That recognizes the importance of employee morale…..
That can launch new products into a headwind…..

And — I want a team that realizes companies don’t become great when times are good (they coast because that’s what humans do) — they get great when times are tough. When they can buy things cheaper, hire better employees easier, focus more clearly and stay excited about how things are going to be instead of worrying too much about how things are.

We used to say “we didn’t work this hard to get where we are today, we worked this hard to get where we’re going next”. Cutting costs, cutting headcount, cutting R&D isn’t offense it’s defense. A company on defense isn’t my dream equity for the next market cycle. And it shouldn’t be yours either.