Remember IBM at $10.50 per Share? Oracle as a penny stock? Tales of Hope from the Great High Tech Depression of ‘89
Ah, distinctly I remember it was in the bleak …..October.
Paraphrasing Edgar Allen Poe’s The Raven seems somehow appropriate to this moment, when it seems that everything we’ve all worked and dreamed about is going up in smoke. And yet, having seen a version of this movie more than once, I’d like to offer a little comfort to those who look at what’s happening around the globe and think, as I have several times this week, that dreams of retiring, much less paying the mortgage next year, are looking rather bleak.
Back two recessions ago, the stuffing got knocked out of the market and, with it, a lot of gloom and doom was bruited about not just regarding the macro-economic disaster of lower output and heightening unemployment, but the disasterously permanent effect this was going to have on high-tech.
No company was more a bellwether of high-tech than IBM, and no stock took it in the shorts – pun intended – the way IBM did. Before the dust had settled, IBM’s stock was down to $10.50 a share. Yes, for approximately the cost of two lattes at today’s prices, you could have owned a share of the great IBM.
Actually, one stock did even worse, relatively speaking. Oracle, at the time a nascent player in the nascent relational database market, hit absolute rock bottom at 13 cents a share – as in, that and a dollar won’t get you a cup of joe, not to mention the aforementioned latte. (Note: I've since been told that the 13 cents price is the split-adjusted price, not the actual price, which was, according to my fellow Enterprise Irregular, Anshu Sharma, at something over $5 at the time.)
It was that bad out there.
It always seems to happen in October. Whether it was October 1990, when Oracle hit its nadir, or October 1993, when IBM hit the skids, the tendency of the market to tank as the leaves start changing is yet another indicator of the psychological nature of what we often mistaken for a rational, objective process. The fact that this collective psycho-freakout always punishes tech stocks is indicative of the role these stock play in the overall global economy. So the sellers in today's market think.
But things are very very different than back in the ‘89-’92, as well as in the 2001 recession we think we were just getting over. For one, high-tech has more of a hypercritical role in running companies than it did in the last two recessions – the core footprint of IT extends across more people and processes than ever before. And there’s more proof, real proof, that IT investments yield genuine value in terms of per employee productivity, competitive advantage, and customer satisfaction.
This means that one of the more shortsighted things one could do right now is place a long term short on tech stocks, and yet as a sector they’re getting beaten up along with everything else. In reality, when the mass hysteria of the moment settles down, what we’ll see is that, no matter how deep and dangerous the current recession is, technology will emerge as not just an essential budget item that must be maintained no matter what, but as an essential component in the cost-effectiveness of the overall enterprise that will continue to be maintained regardless of how grim the immediate future may look.
And once this realization settles in, those with the memories, and the cash, to remember what IBM at $10.50 and Oracle at $5-ish meant both as potential investments back then – had you bought either stock at its nadir, you’d be sitting on a golden nest egg even after today’s market close – as well as what they and the rest of the core of high tech mean to the future of the market once the recovery comes, will start buying tech stocks like crazy.
In the midst of this panic is a fundamental truth: There will be a recovery, and when it happens, high-tech will be in the lead. Within two years of its nadir, IBM’s stock had more than doubled. And Oracle, starting so low, tripled its value in the ensuring 12 months.
Ready, set, buy……..