Low Market Volatility Equals High Industry Volatility

At the present, brokers and service providers are struggling – market volatility is at historically low levels and has been since April. Consequently, corporate restructurings are happening industry wide as companies are looking for solutions to cope with the lower volume.

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So what is the solution to managing a business through the current lack of volatility? The answer is establishing and maintaining a cost structure optimized for the current volatility. I touched on cost structure a little in a recent article, but I continue to be blown away by the unsustainable cost structures I come across in this industry.

The well-established brokers that have weathered the low volatility storms of early 2007 and 2012 understand today’s environment very well. Since 2012, the amount of brokers has increased exponentially and not all of them have had to manage through such environments. Even with the slow markets, I have seen a few companies growing quite nicely. Each firm has a few things in common:

1. They are not top heavy. Companies with 40 employees do not need 15 directors
2. The management team is very involved and hands on
3. The shareholders do not suck the company dry of cash
4. The employees are willing to stick around and get the job done. The 8-hour workday is a thing of the past
5. Cost structures are variable and flexible

I personally think the current environment is a good thing for the industry. The strong will survive and gain market share. The weak will be absorbed or go out of business. Volatility will be back and the playing field will be different.