013: How do you spot a market bubble?

Junk bonds, dot.com, real estate all went through a spectacular rise and then a dramatic crash. I survived the dot.com & telecom bubble and crash of the late 90’s. It got me to thinking, “if we are all so smart, how come we didn’t see this coming?” Well some did, (The Big Short – by Michael Lewis paints a good picture.)

In this episode of Dynasty Leadership Podcast, I sat down with Jonathan Cleveland of Houlihan Lokey. The division of his firm focuses on companies that are in trouble. More importantly they are making some big bets on what industries will crash next.

[bctt tweet=”“It goes back to being realistic about what’s happening in your business, and where that business is going to go.”” username=”dynasty_leader”]

Jonathan explains the secrets behind what they search for and what you can look for in your business and investments to stay safe and make money.

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What were the key takeaways?

[1:55] At the Houlihan Lokey firm, they have three main divisions. Jonathan explains what each of these divisions are and how they help their clients.
[3:10] What’s Jonathan’s background, and how did he get involved with the firm?
[6:00] Houlihan Lokey works with high-scale clients. The average debt level for a client is around one-and-a-half billion dollars.
[7:50] How do distressed companies get so deep into trouble? Is it because they have an easier time accessing capital?
[11:25] You know your industry is in trouble when the guy on TV says, ‘This time it’s different.’
[12:55] Let’s say the industry or sector is doing okay, how do you tell when an individual company is in trouble?
[17:15] The rest of your business operations can get a bottleneck when the company is focusing on paying off high levels of debt. It can often be a Catch-22.
[20:15] If lenders feel unsure you are able to pay off the debt, they can re-price or even increase their rates.
[22:30] What types of distressed companies come to Houlihan Lokey?
[26:25] Who makes the call to get help? Is it the bank or maybe even the CEO of the business?
[30:20] What are some of the biggest mistakes distressed companies are making?
[34:25] How does Jonathan access the executive team?
[37:20] A lot of human psychology is used when interacting with a distressed team.
[37:30] Failure challenges our ego.
[39:10] You need to have a real awareness over the consequences of borrowing money.