Thread
One of the challenges of growth tech investing is that there have been very few major drawdowns like this one to compare to in the last 30 years
There’s GFC and dot com… those are really the only comps
March 20 was resolved by a flood of liquidity (which isn’t coming now). GFC was an exogenous housing/debt event that pulled everything else down. And dot com was a massive bubble
Nothing is ever exactly like the past but - of those 3 events - people have been defaulting to dot com as the most similar to what we are going through so many expect it will take years for stocks to recover if ever to their Feb or Nov 21 highs
The N of 3 is too small though. Tech is much more mature now than 20 years ago and omnipresent. Do you think Rogers is going to stop investing in cybersecurity and network management after the last few days when basically half of Canada’s internet and wireless network failed?
Pre-1999, there are few growth tech stocks to examine as case studies for what we are going through now… IBM? Apple pre Jobs return? Microsoft (which basically never pulled back until it hit a 60x PE in March 2000)?
One period that caught my eye (and it’s an N of 1 so beware) is the lead up to the 1990 recession and Oracle
That growth tech stock was still a recent IPO and hit a peak of 70 cents (todays prices) in March 1990. Like today, it was an early bellwether for a coming economic slowdown broadly (as growth tech stocks have been for the last 18 months). It dropped to 13/14 cents by October
An 80% decline in 7 months… ouch… sounds like an ARKK stock
However, even as the general economy worsened and didn’t bottom until the second half of 91, Oct 90 was the bottom (as it was for most stocks generally)… the Fed loosened in early 91 in response to the economic downturn
Growth tech stocks probably recovered faster than other general stocks… partly because they declined so quickly…. Adobe didn’t have as great a decline as Oracle and had a much faster v shaped recovery in its stock price
2.5 years later, Oracle’s stock price had 10x’ed from its Oct 90 lows
Most growth tech stocks bottomed on May 12, some on June 16 and some Chinese Internet ones in mid March
Is the Fed going to loosen in 4 months from now in response to deteriorating economic conditions?
Picking the right stocks matters. Microsoft basically never pulled back in 1990/91
All great growth tech stocks have been big cash generators. However some “profitless” tech companies which get dismissed can become big cash gushers a couple of years from now
See Amazon dot bomb in 99 vs 02 when its stock bottomed the moment it began to generate cash and never looked back
These names are the toughest to spot but have the biggest upside
I like $OPEN the most as a prospect for changing its general image from a cash loser to a cash generator over the next couple of years. If they do, they can be a $100+ stock easy
Carvana will try to change their perception as a money loser. However they will have a tougher time. They’ve always lost money every quarter since they’ve existed. It’s going to take a real change in work out regimen to change. If they do, big upside
But there are many solid cash generating tech growth companies today with compressed multiples and strong businesses… they were First Down in Feb 21 but now will be First Up compared to other sectors
FYI... it took 2 years and 9 months for $ORCL to get back to its March 90 highs
We are just past the halfway mark from the Feb 21 peak for many growth tech stocks (17 months out of 33 months).... mind you, we're now to the upswing portion of that parallel
We are just past the halfway mark from the Feb 21 peak for many growth tech stocks (17 months out of 33 months).... mind you, we're now to the upswing portion of that parallel
However, here is the case of Adobe $ADBE back then.....
- Peaked in May 1990 at $3.20 (today's dollars)
- Declined 65% in less than 5 months to $1.12 in Oct 1990
- Regained its entire loss by March 91 (5 months later)
- Peaked in May 1990 at $3.20 (today's dollars)
- Declined 65% in less than 5 months to $1.12 in Oct 1990
- Regained its entire loss by March 91 (5 months later)
Microsoft $MSFT peaked in mid-July 90 at $1.10...
Bottomed 5 weeks later at $0.75 (32% decline peak to trough)
Eclipsed its July highs by mid-Jan 91 (total 6 months to get back to all-time highs)
Bottomed 5 weeks later at $0.75 (32% decline peak to trough)
Eclipsed its July highs by mid-Jan 91 (total 6 months to get back to all-time highs)
Just for kicks... MSFT declined 49% from Oct 6 - 26 1987
Took 2 years to get back to Oct 6 87 highs
(MSFT 14x'ed from its 86 IPO to July 91)
Took 2 years to get back to Oct 6 87 highs
(MSFT 14x'ed from its 86 IPO to July 91)
ADBE dropped from $1.71 in May 87 to $0.47 on Oct 28 87 (73% decline)
Took 2 years to get back to its May 87 highs
Took 2 years to get back to its May 87 highs
ORCL dropped from $0.23 on Oct 5 '87 to $0.10 on Oct 26 '87 (57% decline)
Total of 8 month to go peak to trough back to peak (June '91)
Total of 8 month to go peak to trough back to peak (June '91)
For contrast....
ROKU's July 21 peak to mid-June trough was an 85% drawdown over 11 months
ZM's Oct '20 peak to May 22 trough was an 86% decline over a 19 month period
ROKU's July 21 peak to mid-June trough was an 85% drawdown over 11 months
ZM's Oct '20 peak to May 22 trough was an 86% decline over a 19 month period
OPEN hit an all-time high of $35.88 in Feb '21.... all-time low was less than a month ago (6/16) of $4.30.... 88% decline in 16 months
Another data point?
AMZN peaked at $5.33 on 12/10/99
Bottomed at $0.30 on 10/02/01 (a year before the Naz and S&P bottomed)... 94% decline over 22 months
AMZN peaked at $5.33 on 12/10/99
Bottomed at $0.30 on 10/02/01 (a year before the Naz and S&P bottomed)... 94% decline over 22 months
Apple top-ticked pre-GFC at $7.14 on 12/28/07
Bottomed at $2.96 on 1/28/09 (59% decline in 13 months)
Bottomed at $2.96 on 1/28/09 (59% decline in 13 months)
This current drawdown of growth tech stocks is way more severe in magnitude and length than March 2020, GFC, 1990 recession or the 87 Crash..... we are really at dot com pullback levels.... is that "deserved"? I won't make a moral judgement
Gotta throw this in....
PDD peaked at $202.81 on 2/17/21
Bottomed at $23.21 on 3/15/22
89% decline in 13 months (has now 1.6x'ed since the March lows)
PDD peaked at $202.81 on 2/17/21
Bottomed at $23.21 on 3/15/22
89% decline in 13 months (has now 1.6x'ed since the March lows)
That's like playing a podcast about the Amazon dot com drawdown at 2x speed!
I understand that recency bias is strong and it's easier to hold opinions that the world will just continue as it has been for the last 3, 6, 9, or 12 months....but it's hard for me to not look at this current growth tech drawdown in historical context & not be very bullish
Salesforce $CRM has a 50% drawdown from November '21 to May '22 (and it's a $175B company)
It's only had a bigger drawdown bigger than that once in its history as a public company (during GFC from May'08 to Jan'09 when it dropped 63% -- however it was a $6B company back then!)
It's only had a bigger drawdown bigger than that once in its history as a public company (during GFC from May'08 to Jan'09 when it dropped 63% -- however it was a $6B company back then!)
PENN dropped 80% in 14 months to May '22
DKNG dropped 86% over the same period
SKLZ (small cap same space) dropped 97% (!) over 16 months
DKNG dropped 86% over the same period
SKLZ (small cap same space) dropped 97% (!) over 16 months
The Naz was up 21% last year yet there was absolute devastation for most smaller growth tech stocks last year (only to be outdone by the first half of this year)
And let's not forget the alt coins....
$AXS (Axie Infinity) is down 93% from Nov'21 to its June '22 low
$YGG (Yield Guild Games) was down 97% from Aug '21 to its mid June '22 low
$JEWEL (DeFi Kingdoms) was down 99% (!) from Jan'22 to the 6/18/22 crypto lows (breath taking)
$AXS (Axie Infinity) is down 93% from Nov'21 to its June '22 low
$YGG (Yield Guild Games) was down 97% from Aug '21 to its mid June '22 low
$JEWEL (DeFi Kingdoms) was down 99% (!) from Jan'22 to the 6/18/22 crypto lows (breath taking)
Is there ever going to be a better time than now to invest in a decent crypto gaming company token?
emphasis on *decent*
Those make the 74% decline of Bitcoin or the 81% decline of Ethereum from 11/09/21 to 6/18/22 look quaint
To me, the 83% decline of @jeffiel's $TWLO from Feb'21 to 6/16 looks absurd
So does the 83% decline of @niklasoestberg's $DHER from Jan'21 to 5/12
So does the 83% decline of @niklasoestberg's $DHER from Jan'21 to 5/12
@jeffiel @niklasoestberg I know bears will keep arguing none of these "profitless tech" (not true btw) companies deserved to trade as they did post 3/20... even if you agree... the sell offs are astounding
@jeffiel @niklasoestberg ZM did $331M in revs in 2019... it will do $5.1B next year (ending 1/31/24), yet its stock price is only 76% higher than where it was on 12/31/19??
Canoo $GOEV goes from $13.35 on 11/29/21 to $1.75 on 7/5/22 (87% drawdown in 7 months)
Up 75% this morning after Wal-Mart orders 4400 vans for last mile delivery
Up 75% this morning after Wal-Mart orders 4400 vans for last mile delivery
I will be on @CNBCClosingBell just after 3pm ET today to chat about this thread with @SaraEisen
Need to add one more to this thread:
$SHOP (disclosure: I am long) will nearly 5x its revenues from 2019 to next year ($7.5B from $1.5B)....
Yet its stock price has CAGR'ed since Dec 31/19 to today at -8.8% per year (that's a minus)
$SHOP (disclosure: I am long) will nearly 5x its revenues from 2019 to next year ($7.5B from $1.5B)....
Yet its stock price has CAGR'ed since Dec 31/19 to today at -8.8% per year (that's a minus)
