For our third episode of At The Rotterdam, Jeff and Rasheed go back in economic history again, but this time only to the turn of this century, to 2000-1. Here is a nice piece about that era: http://www.paulgraham.com/bubble.html
Then, like now, tech experienced a major correction that took years to recover from. But the recovery post 2001-2 lows was unprecedented.
The worst losses this year have been in zero revenue and zero profit technology companies, as well as crypto assets. Cathie Wood’s ARK Invest is down over 75% from ATHs as of this podcast. Electric vehicle companies such as Lordstown (RIDE) and Velodyne Lidar are down more than 90%. Streaming company ROKU is down around the same.
So where do we go now with tech? To be honest we have no idea. But we came up with eight lessons from the dot-com crash that may or may not be applicable to our listeners.
Stocks such as Amazon and Apple collapsed in 2000 but eventually not only rallied back to above their previous highs but have skyrocketed since. Apple fell 80% in 2000-1 but is currently up 11,300% from its 2000 ATH and 59,000% from its 2003 ATL. Any time was the right time to buy such stocks. The lesson here may be that what you buy is more important than when you buy.
Some stocks never recovered after the crash (e.g. Pets.com). They were a bust at any price. Once again, market timing didn’t matter. Bad ideas generally can’t survive austerity. Corollary of lesson 1.
Some ideas were good ideas but the companies didn’t have the runway to make it. Because bear markets generally last a while and funding can dry up for a long time, eventual winners need positive cash flow or strong balance sheets. Watch for cash burn especially. New firms with fresh funding can enter and take all of the spoils if competitors are weak. This is what Google did, post-2000.
Even the best stocks took years to bounce back after the 2000 crash. It took Amazon almost 10 years to beat its old high. Other than the COVID crash and 1987, recent bear markets have lasted years. Patience has historically been a highly-valuable virtue.
The strong firms stood on the shoulders of their fallen brethren. Without Global Crossing putting fiber across the Atlantic and then going under, would we even have e-commerce? Bubbles change dynamics. They fund bad ideas and good ideas alike. There is time to see who will take advantage of the weaknesses and failures of others.
Don’t hold the losers through the bear. There are lots of bear traps, rallies where everybody is filled with some hope before markets collapse again. There were multiple 10-20% rallies in 2000-2003 where it would make sense to dump the losers.
The collapse did not invalidate the internet thesis. Far from it: It created the next generation of champions that could build on positive cash flow and/or strong balance sheets and business models. Is this true of newly-emergent tech like electric vehicles?
2000-1 is an example where a few bgi winners dominated the best portfolios. The best way to have ensured you bought and held Apple, Amazon and Microsoft, to name three winners, was to be very diversified. Diversity has historically been finance’s free lunch. Rasheed holds a barbell of safe assets and emergent companies. One future Apple pays for a lot of mistakes.
In hindsight, the dot-com crash of 2000 is a hardly-noticeable blip in the NASDAQ. WIll this be true of 2022-3?