Howard Lindzon

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.

{ 0 comments }

howard_lindzon

startup_empireLater on in the afternoon at yesterday’s Startup Empire conference, Howard Lindzon took the stage. Howard manages a hedge fund and is the creator of the finance news humour site Wallstrip, which he sold to CBS in May 2007. He also has a very popular financial blog at HowardLindzon.com.

I shot some video asking Howard about his idea of “social leverage”; I’ll post it a litter later on. In the meantime, here are my notes from his presentation, Why Now is a Great Time to Start Your Startup.

The Current Situation

  • Capital, which was so plentiful, is now gone
  • Reminiscent of the real estate bubble in Phoenix (where I live half the time)
  • Really important right now to shut out the noise
  • From 2002 – 2006, it was fun to read Valleywag, TechCrunch and make "me too" products. You can’t do that anymore
  • It’s also a bad time to base products on:
  • Sometimes you have to shelf your ideas for when the times are more suitable for them
  • The headlines are all doom and gloom these days:
    • "Financial Ice Age" – BusinessWeek
    • Startup Depression – Calacanis (I’m not a fan)
  • You must remember that even during good times, 80 to 90% of businesses fail
  • The VC model isn’t broken

Social Leverage

  • Financial leverage has come home to roost
  • We’re in a period of deleveraging: there is no bottom, because we don’t know what everyone owns
  • P/E ratios — it’s all about expectation, people expect less
  • You can’t get what you got six months ago
  • Expectations are in "this ratchet-down mode"
  • I also think that "we’re going into a depression" is crazy talk
  • I’m anti-financial leverage
  • Social leverage is all-powerful
    • Nothing you do in social leverage will haunt you
    • It’s a gift from the likes of Facebook, LinkedIn, Twitter
    • Perhaps you shouldn’t start building social leverage with a blog unless your passion is for writing
    • Start small: work with people
    • Be mindful of the etiquette of social networking tools
    • The time to ask people for something is when they’re least expecting it

Too Small to Fail

  • Wall Street was all about "too big to fail"
  • I’m not seeing signs from the presidents about being small – they seem too concerned with conglomerations and unwilling to bust up things
  • Bailouts just prolong the process
  • This is not a headline, it’s a state of being
  • It’s a great time to start a web-based business
  • If you’ve ever played the board game “Risk”, you know:
    • If you’re starting all your armies in Europe, you’re screwed
    • Start off in New Guinea
  • Consider one of my projects, Stocktwits.com
    • I like to stay in businesses I know
    • Started in Twitter — thought it was dumb in the beginning
    • Guys, this should be about ideas
    • Wrote post about how there should be a message board for stocks using the reputation model in Twitter
    • Twitter allows you some sort of reputation — everything you say is there for people to see
    • Stocktwits — one employee, $30K to start
    • Twitter offers possibilities: dating, betting — supports an ecosytem
  • Be careful in whom you trust
  • Embrace social leverage
  • Be too small to fail: do the one thing you do very well
  • Take as little money as you need; things will get better
  • Ignore the people saying that this is “a new Ice Age” – they’re idiots

Fear

  • Zig while others zag
  • Take a look at this graph, in which the pink line is the Vicks index and the blue is RRSPs: 

    fear_zig_while_others_zag

  • From 2003 – 2005:
    • Fear level low
    • Calacanis’s company, TechCrunch and other stupid tech businesses wree founded when fear was low
  • It’s always a good time to start a web business
    • The truth is that it’s never a good time to start any business
    • Successful business can be started anytime
    • 80 – 90% of businesses fail anytime

Why businesses fail

  • It’s important to have structure right from the beginning
  • Mistakes made at start can come back to haunt you
  • Sometimes partners fight, so rules and agreements at made at the the start are valuable
  • The keys: Structure, funding and realistic valuation
  • When it comes to spreadsheets and plans, keep in mind that it’s important to do one thing, do it well and get that customer – this is far more important than the spreadsheets
  • Make sure you’re fishing where the fish are
    • “Swim near the shark”
    • Be around certain ecosystems

My Advice

  • Social leverage: good
  • Financial leverage: bad
  • Be an expert at something
    • For good or bad: mine is finance
    • "I don’t really like the people in my industry"
    • Applications of my expertise:
  • Investing: more art than science

      Q & A

      How do you balance your day?

      • StockTwits is the only thing I run
      • Knightsbridge pays me to be on the road
      • I’m usually up at 5am
      • Private equity: long hours, long weekends

      How do you make use of social leverage?

      • One example: Fred Wilson
      • Two months invested in reading his blog
      • I found out that Fred was a basketball fan and took him to a Phoenix Suns game
      • We talked business
      • Fred just happened to be friends with Jim Cramer
      • Through Fred, I  met everybody else — I counts it as my “real day 1 “
      • “You make your own luck”

      What are you looking for with companies?

      • I’m more of an angel and a scrapper
      • I want to to be early
      • I want to see a finished product
    • { 4 comments }