Every fire spawns new growth.
Seminal events. Moments that matter. Going against the “conventional
wisdom”.
The few days following Sept. 11, 2001 most investors panicked and went
to cash. My advice in those days was buy security stocks. Stocks like
InVision (xray at airports) and others. Some went on to spectacular
gains — more than 500% — once chicken little was done yelling the sky
was falling. Or rather, people finally realized chicken little was just
that, chicken.
A little while after that I began to focus on Chinese web stocks. Sina,
Sohu, Netease, Chinadotcom. Some of them traded below cash value. This
was a time when nobody wanted anything to do with “Internet” and even
less to do with “China”.
Of course, Chinese web stocks went on to soar in the next few years as
China’s economy blossomed, Olympic spirit kicked in, and Shanghai gave
Tokyo a run for its money.
Fast forward to today’s economy. A blanket clusterflub. Mortgage
meltdown. Banks acting like consumers (overextending themselves). How
ironic. Overpriced wars (they ain’t as cheap as they used to be). Stock
market more volatile than Sarah Palin in a moose hunt with her Saks
Fifth Avenue gear on.
From 2004-2008 the stock market had a run. It got ahead of itself in
many ways. Private equity shops borrowed money they didn’t have (yours),
acquired assets they couldn’t manage, speculated on mortgages nobody
owned.
Meanwhile, over-regulation of the stock market killed the IPO prospects
for many, strengthened the incumbents (eBay, Google, Yahoo).
That run is over.
The next step I believe could be expanding margins at large companies.
When companies such as Circuit City fail, Mervyns fail, and others in
retail may follow suit, it may point to mismanagement. But the
underlying cause is a lack of efficiency internally.
Walmart has 100 million customers a week come through its doors. It
displays every item in the store based on whether or not customers buy
it. It knows to a thumbtack what its expenses are. It negotiates with
vendors to get best prices. Some may say ruthless but the key point I
want to make is it’s technology behind the success. Walmart’s supply
chain should be standard educational procedure for every retailer
worldwide. Why do you think Amazon hired Walmart’s tech geniuses away
from Walmart a few years ago?
You’re going to see companies such as Sun, HP and others layoff people.
Overstaffing isn’t the problem with them, it’s lack of products people
want to buy. Overpriced servers. Overpriced service contracts. What Sun
could have done was say to its employees: “we’ll give you office space,
you make a business in networking that Sun will get behind”. In one move
it could have had 1,000 people unleashing creative juice into its
stagnant, fetid blenders, the ones that have asked “will it blend?” on
the same Solaris carrot for 25 years.
Ditto for Yahoo. Unleash 1,000 engineers to launch new services on Yahoo
and they will come up with a new Yahoo better than anything seen yet.
Open it up to the public. You would have a Yahoo that’s grassroots
driven, the only way to beat Google ever.
So as we read the repeated headlines about banks, bonuses, homes, keep
in mind that every turning point, every seminal moment, opens up
opportunities for those that tune out the noise of naysayers and focus
on value that exists everywhere.
Things born of fire tend to endure.