A friend of mine and I went to a local bar that we very much enjoy frequenting because it is set up in a way to foster connection and conversation between the patrons. It has a living room type configuration with couches and very comfortable chairs in which there is the opportunity to sit across from people and be close to them in a very informal and fun social setting. The other night we saw three young men sitting on the couch next to each other. It was very apparent that they were quite close and having a grand old time. They were much younger so rightly or wrongly the first impression we had was that we didn’t have much in common. My friend decided to engage them and broke the ice and started making conversation with them. Despite them being somewhat inebriated, It was clear that there was more depth than first met the eye.
Two of the boys were brothers and another was their best friend. They were very close and connected and the third one looked like he could be their brother as well. I was sitting in a chair across from them and the youngest of the three starts talking to me and essentially says let’s cut to the chase, avoid the small talk, and let’s be real together right away. I’m always game to go deep and admire risk takers so I began listening intently.
What is a Crucible?
He starts off the conversation by asking me if I knew what a crucible was. I was well aware of the play by Arthur Miller and said that I had some idea of what it is but told him to elaborate.
He said a crucible is one of those traumatic events in your life that are instrumental in shaping who you are as a human being. He set the table so he expected me to feast from it by me telling him what my crucible was. I didn’t want to jump right in and tell him that I just lost my wife of nearly 30 years because, honestly, I think it’s too early to declare that a crucible. I paraphrased Kierkegaard and said that “life is lived forward and understood backwards” which kind of rocked his world as he reflected on it. I was thinking to myself that the loss of Roneet is too raw for me to be able to understand it and know how it has been a crucible for me. I’m certain it will be but not now.
I had another one that came to mind but decided to keep my cards close to the vest. I made deep eye contact with him so he knew I cared and was listening intently and asked him what his crucible was. He proceeded to tell me about a very difficult situation with his mother who has a degenerative nerve disease and he had to come back from college to help her and he’s only 23. At the same time, he had a father who abandoned the family, but there was a time when he came back and he lived with him for eight months, only to have him take off again. With him being so young and his mother’s condition still present and deteriorating he’s too young to truly make sense of it but I greatly admired his openness and honesty.
It was now my turn so I shared with him what happened to my son Jacob when he was two and how he had a very rare reaction to the chicken pox and had a stroke. He nearly died and has had to contend with many challenges over the ensuing 23 years. He was very moved by that, particularly after having a father who abandoned him. He said there was a time when he would have had negative feelings towards people who were so different but then realized, quite insightfully I might add, that he was so wrong about that and commended me as a father for his sense that I respected those differences in Jacob and honor them and felt like they were real gifts. He was really an interesting young man and one I hope I run into again. On the way out I saw him with another group of people and told him to honor his crucible. He thought I was making fun of him but I was serious. I said they have helped shape who you are and who you will become. He smiled.
If I shared with him the crucible in my business career, on the other hand, I think his inebriated state would have quickly turned to an instant hangover out of boredom. But since this blog is more investment and business focused, it’s worth reiterating here, even though I covered it pretty extensively in my book. It is related to the very difficult situation that we faced in the early 2000s. In the midst of the tech wreck and the recession that ensued, we were faced with declining rents and occupancies which led to a deterioration in our operating income. Because of the weak economy, the Federal Reserve began cutting interest rates aggressively. Unfortunately, we were not able to lower one of our largest costs, debt service, because we were stuck with numerous fixed-rate loans that we could not refinance out of or sell those properties because of the very onerous yield maintenance penalties that made it noneconomic to pay these loans off early. Lenders did not want to get their money back and give up the high-interest rates they were earning only to have to reinvest those dollars into lower yielding investments. As a result, they wanted compensation from borrowers who repaid their loans early.
I decided to do a Google search for personal crucibles and came across an interesting Harvard Business Review article called Crucibles of Leadership. One of the authors is Warren Bennis, a highly regarded USC professor who was an expert on leadership. He and his co-author studied numerous business and government leaders to understand how crucibles helped them become better leaders. To show how important crucibles are, the authors made the following conclusion:
Indeed, our recent research has led us to conclude that one of the most reliable indicators and predictors of true leadership is an individual’s ability to find meaning in negative events and to learn from even the most trying circumstances. Put another way, the skills required to conquer adversity and emerge stronger and more committed than ever are the same ones that make for extraordinary leaders.
The typical saying is “No pain, no gain.” I prefer to say, and I think the authors would agree, “Know pain, know gain.” The more I go through life the more I am coming to realize that it is primarily a series of problems interrupted by occasional experiences of ease. They don’t call it growing pains for nothing. If we want to grow and stretch ourselves we will face constant challenges and the same is true even if we keep the status quo. Competitors will eventually pass us by and everything eventually breaks down if it’s not maintained. We can transform problems into challenges and turn challenges into opportunities by dealing with them head-on. By doing so we continue to grow and by avoiding them we only feel worse. As a result, the only way out is through. If we can truly know pain, accept it, and deal with it, then we can know gain because of the growth that it engenders.“Know pain, know gain.”Click To Tweet
A crucible is the vessel which was used to try to convert lead into gold by alchemists. It’s used as a metaphor for turning something that is not perceived to be valuable, or even negative, into something positive. According to the authors they are very formative events that are:
“[I]ntense, often traumatic, always unplanned experiences that have transformed them and had become the sources of their distinctive leadership abilities.”
Crucibles took on such power and meaning because they forced the leaders they studied to look deeply within and question who they were and what they believed in.
“For the leaders we interviewed, the crucible experience was a trial and a test, a point of deep self-reflection that forced them to question who they were and what mattered to them. It required them to examine their values, question their assumptions, hone their judgment. And, invariably, they emerged from the crucible stronger and more sure of themselves and their purpose—changed in some fundamental way.”
Back to my Personal CWS Crucible
With cash flow declining and debt service remaining fixed, we were in a negative cash flow situation with a number of our properties. This necessitated us having to raise additional capital from our investors to support their investments in order to buy time to get to the point where we could refinance or sell properties. Once those loans came due then they could be prepaid without penalty and the financial picture turned around overnight.
To say this was a formative experience is an understatement. It was a personal crucible. I would never want to relive it but it led to the opportunity to dive more deeply into why we made the decisions we did in terms of the loans we selected and what we could have done differently in the future. The result was a significant shift and bias towards floating rate loans which, as I have written about ad nauseum, have far less costly prepayment penalties than fixed-rate loans. This has enabled us to refinance our loans when the spreads associated with variable rate loans compress, loan terms become better, or we want to sell the properties and capture the value that we have created without having to require buyers to assume our loans. We have also been able to generate significant interest savings since 2012 as our cost of funds has been lower than the fixed rates that were available at the time of origination.
I will wrap this up by returning to the article and applying it to CWS. The authors believe that great leaders possess four essential skills. And they are the same skills that “happened to be the same ones that allow a person to find meaning in what could be a debilitating experience.”
- The ability to engage others in shared meaning.
- A distinctive and compelling voice.
- A sense of integrity, including a strong set of values.
- Adaptive capacity – By far the most critical skill
Adaptive capacity is “applied creativity and the almost magical ability to transcend adversity, with all its attendant stresses, and to emerge stronger than before.” For this to take place requires two primary qualities.
“The ability to grasp context and hardiness. Context implies an ability to weigh a variety of factors, ranging from how very different groups of people will interpret a gesture, to being able to put a situation in perspective. Without this leaders are utterly lost because they cannot connect with their constituents. Hardiness is the perseverance and toughness that enable people to emerge from devastating circumstances without losing hope.”
At CWS our adversities have definitely made us stronger. In tackling them we have been very adaptive and sensitive to context as we recognize that no two situations are the same and every investor is unique and has specific needs that require us to adapt accordingly. We have had also displayed a high degree of hardiness in dealing with the numerous challenges we have had over our 50 years. We have worked through them by dealing with the specifics of each one and possessing a strong mental fortitude, communicating with all stakeholders in a very transparent way, having a highly competitive streak emanating from hating to lose, and having a deep and unwavering commitment to our investors to preserve their capital.As one of our founders, Bill Williams likes to say, “Out of the hottest fire the strongest steel is made.”Click To Tweet
In summary, I would say that the I’ve had a number of crucible experiences in my life (both in business and beyond) and they have taught me to accept that change is one of the only constants in this world and nothing is permanent (thank you, Buddha). We can try to prepare for many different scenarios, but there will be things that happen that seemingly come out of left field for which we could never be fully prepared. What we can do is to create our own personal boot camp to try to prepare ourselves mentally, physically, and emotionally for the battles we will inevitably face in life. And despite our preparation, we will still have down days and experience grief and despair when things look the darkest. But if we believe we are fighting for a greater good and that by persevering and hanging in there we can learn, grow, and become stronger, then we just may find the reservoir of strength to keep fighting until we overcome what is standing in our way.