This article was published in América Economía, on December 2, 2010 in Spanish and on December 6 in Portuguese.
Will the Bovespa keep rising at the current pace? It's up 20% in the past five months. What's going to stop it?
Most people reply: it will depend on the economy. Or corporate profits. Or interest rates. Or global liquidity. Or demand from China.
Here's a better answer: it will depend on the directors, officers, and shareholders of the companies listed on the Bovespa. As an example, the economic meltdown in the US stemmed from a financial bubble that could be traced to a few people. But millions who benefitted from the prosperity had become willing accomplices allowing the bubble to grow and finally burst. In the same way, the people participating in the Bovespa's rapid ascent are choosing not to look at important details or to solve simple problems before they escalate into crises.
Take this test to see if think you understand what has been going on in the past year. In each case, the correct answer is a leading company (or companies) on the Bovespa.
If you know the answers, and you have not acted to correct the problems or to inform others, then you are responsible for a potential blow-up. If you do not know the answers but you are a director, officer, or shareholder of a large Bovespa company, then you have your head in the sand - and you share in the responsibility for what may happen.
For sure, the Bovespa will be hurt by any downturn in the economic and political environment. But the extent of the pain will depend on the stability of individual companies. This means that everyone involved - from directors to officers to shareholders - has a lot of work to do.
They say that success has many parents, whereas failures are orphans. This is a sad commentary on our failure to take responsibility for things that go wrong. We have learned enough from recent experience to anticipate failure - and to take steps to mitigate its impact. Now we need to apply that lesson.
Let's hope that the Bovespa keeps rising steadily. But let's do more than hope: let's ask, analyze, and act. Let's not assume some one else will prevent a meltdown. Yes, I'm talking to you.