Anthony DeAngelis

Tough economic times loom, and the natural reaction is to assume a kind of economic bunker mentality. It’s hard to focus on the likes of Google, Apple, and other tech all-stars with solid fundamentals, when every “expert” is screaming that a storm is coming, and the time has come to weatherproof your portfolio.

Sell everything, sit on your cash, keep your powder dry, make sure you’ve got plenty of canned goods, a gassed-up generator, some tanks of fresh water, and a world band radio. Emergency kits are supposed to keep you self-sufficient for as long as a week while you wait for help to arrive. Your economic emergency kit should keep you healthy through the balance of 2009.

Hold the phone. Tech investors have seen this kind of thing plenty of times before.  I recall the ups and downs in Silicon Valley since 1989.  We’ve seen our fair share of recession here.  The dot com boom and bust got a lot of attention but 1996 comes to mind too.  So does 1992.  Pundits point to what’s happening now as far worse for tech than the dot com bust in 2001.  I don’t agree.  If recession is cancerous to the body economique, than the dot com bust was a melanoma—localized with the potential of becoming something far worse. What we’re seeing now is almost like a leukemia—systemic, bad, with a scary prognosis because we didn’t catch it before it metastasized. But not necessarily for tech.

Forrester founder George Colony has a good blog about all this today and his perspective is useful.  He’s been a tech-watcher for about 25 years when he founded his well-known market research firm, and offers some good perspective about why today is different than yesterday.  Between 2001 and 2003, he argues, tech had a huge way to fall.  And it did, thanks to a near screeching halt to all tech spending and excess inventory.  In the corresponding years, tech did come back, albeit slowly, so Colony reasons that this time around, tech might be down but it’s certainly not out.

But his later points are far better taken.  Having been in Silicon Valley for almost 20 years, I became a student of the nauseating boom and bust cycles that sickened chip stock investors.  The entire industry hinged on the spending whims of IT managers looking to upgrade their hardware. But those steep peaks and valleys began to level out as high-end technologies trickled their way into the consumer consciousness. “Intel Inside” debuting during the NBA playoffs in 1991 took the idea of esoteric business technology to a whole new level of consumerism.

The campaign that launched a thousand consumer tech campaigns.  And while consumers aren’t rushing out to buy anything right now, they can’t live without a PC, a laptop, a cell phone, a car.  Chips and software are everywhere and while spending will slow, Colony argues it will come back, thanks to innovation elsewhere, including all kinds of new Green technologies as an example.  Consumers may not be spending now, but they will.

It’s easy to look at the markets now and write off every investment. But in this time of best-of-breed companies with amazingly strong balance sheets: Microsoft (MSFT), Apple (AAPL), IBM (IBM), Google (GOOG), HP (HPQ), Oracle (ORCL), etc., investors would be well-served to shop for bargains, confident that these rough economic times will smooth over; that some of these companies may not be this attractively priced again.  History shows us that we will come out of this.

Sure, these stocks could move lower. And we keep talking about the “bottom.” I’m not hearing a lot of talk about a “top.” That suggests to me we’re a lot closer to a bottom than a top. Puerile analysis? Yes.  But something to remember as you’re taping up your windows, preparing for the oncoming storm. It will pass.  You’re going to get to go outside again. You will get to invest, again.  And now might be a good time to remember that the sun will shine again on your portfolio.

 -Jim Goldman
   Monday, 27 Oct 2008

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