credit crisis

The Lost Decade

by Joey deVilla on November 23, 2008

First, Andy Serwer, managing editor at Fortune magazine wrote an article titled This Crisis Could Have a Happy Ending. In it, he calls this first decade in the 21st century “one big washout for investors” and “a lost decade”.

He also wrote:

I believe that in order for the market to achieve a sustainable advance that is above the mean, we are due for some unforeseen positive event or events. Think about it. In the 1990s stocks went way up because of an unanticipated revolution in technology, i.e., networking and the Internet. In this decade we had a slew of unexpected negative events – bookended by 9/11 and this current meltdown. At some point, and it may be a few years from now, we will likely be subjected to an unforeseen positive.

Venture capitalist Fred Wilson used this article as a launching point for his article, A Lost Decade – But Not for Everyone. In it, he examines the stock prices of some of the big players on the Dow – 3M, Citigroup, GM, Intel, Johnson and Johnson and United Technologies – and declared the Dow “a mixed bag”:

A few disasters (GM, Citigroup, Intel), a bunch of so so stocks (like 3M) and a some winners (like J&J and United Technologies).

For the best examples, he says you have to look beyond the Dow, where you’ll find Apple (“still up 3.5x in nine years”)…

Apple stock price chart, 2000 - present

and Google (“still up 2.5x from its IPO in mid 2004”

Google stock parice chart, 2004 - present

Based on these observations, he writes:

When I think about what’s really going on in this "lost decade" it occurs to me that we are finally witnessing the impact of the end of the industrial era and the emergence of the information era. That’s not to say every "information stock" has done well. Intel and Microsoft have been a disaster. IBM and HP are down for the decade to date. But we also have to realize that the late 90s drove all information stocks up to crazy levels in anticipation of exactly this shift taking place. The market got it right, but as usual it overshot.

It will be stocks like Apple, Google, and companies we don’t even know about yet that will lead us back out of this downturn. And I bet there will be a bunch of companies from what we used to call the "emerging markets" that will lead us out of this mess. I think I’ll call them the "emerged markets" from now on.

Howard Lindzon, whom I met recently at Startup Empire, chimes in with his article, Has it Really Been a Lost Decade in the Stock Market?

If WE are to learn one thing from the ‘Lost Decade’ of S&P, Nasdaq and Dow returns is that any idiot can make money in an up market. It is the down markets that separate the winners and losers.

The ‘Lost Decade’ will spawn many great winners in the decades to come, and the smallest investor has the biggest chance to reap the rewards from a more level playing field of transparency, reduced supply, stronger companies. Don’t be cynical at exactly the wrong time.

It’s time to build the business of your dreams and quit hoping for anything else.

The underlying message in all three of these articles is that the businesses that will thrive in this down economy will address some kind of need rather than a want and be “underowned” and “non-leveraged” – in other words, small and not owing any money. Sounds like small businesses and startups to me.

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[This article was also published in The Adventures of Accordion Guy in the 21st Century.]

Friends: "Amber's being immature again, isn't she?"

Technology, media and pop culture writer Douglas Rushkoff, who’s got a guest writing slot at the uber-blog Boing Boing, points to an essay titled Riding Out the Credit Collapse. Published in the spring 2008 edition of Arthur magazine, it:

  • Provides a layperson-friendly, non-drowsy explanation of how the credit crisis came about
  • Suggests the single most important thing you can do to protect yourself and your interests during the credit crisis (and in fact, any crisis, including being laid off during a credit crisis)

Don’t let the article’s apparent length scare you off — read it! Yes, it’s ten screens, but it’s set in a narrow column. If you’re still skittish about reading that much, shame on you, and here’s the part on which I want to focus:

Whatever the case, the best thing you can do to protect yourself and your interests is to make friends. The more we are willing to do for each other on our own terms and for compensation that doesn’t necessarily involve the until-recently-almighty dollar, the less vulnerable we are to the movements of markets that, quite frankly, have nothing to do with us.

If you’re sourcing your garlic from your neighbor over the hill instead of the Big Ag conglomerate over the ocean, then shifts in the exchange rate won’t matter much. If you’re using a local currency to pay your mechanic to adjust your brakes, or your chiropractor to adjust your back, then a global liquidity crisis won’t affect your ability to pay for either. If you move to a place because you’re looking for smart people instead of a smart real estate investment, you’re less likely to be suckered by high costs of a “hot” city or neighborhood, and more likely to find the kinds of people willing to serve as a social network, if for no other reason than they’re less busy servicing their mortgages.

I think Rushkoff’s got the right idea, and I’d like to torque it a little further. Forget for a moment the more fanciful ideas of printing your own “Canadian Tire Money”; when he says “local currency”, I want you think of these things:

  • Reputation,
  • Goodwill,
  • and most importantly, Luck.

Among the many things that I’m churning in my brain right now — along with updating the resume, finding a place to put all the stuff that I used to keep at the office and getting that eye appointment with Dr. Heeney before my work-provided insurance coverage expires — is real-world testing an idea and writing about it here. That idea rests on two principles, namely:

  1. Having friends and being friendly makes you lucky. I’ve always suspected it, and Marc Myers wrote a book on the topic.
  2. I’d rather be lucky than smart. It’s the mantra of my all-time favourite financial planner, whom I shall refer to as “P. Kizzy”. If I get even a tenth of P. Kizzy’s business acumen, I will be a very happy man.

Watch this space, ’cause I’m going to expand on those ideas!

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