All stocks are not created equal, some emerge from downturns stronger than they entered them.
The performance of high-growth tech stocks over the last 6 months has led some to wonder whether we're in a recession like the dot-com bubble of 2000 or the Great Recession of 2008. Regardless, a few companies weathered the storm better than others and the lessons from those generational companies can be applied to private markets.
The Great Recession began in Q1 of 2008 and ended in Q3 of 2009. The 5 stocks below ended 2009 at breakeven or up from their 2008 price despite major indices still being down.
I’ve spent a lot of time over the last several weeks seeking to understand the common traits those investments shared, and 3 appeared multiple times across several sources:
1. They leveraged a generational tailwind like Amazon and Google in e-commerce.
2. They were mission-critical software with long-term contracts and service agreements like IBM or Oracle in ERP systems.
3. They created best-in-class return-on-invested-capital; they slowed spending and cut where needed, but invested aggressively when the opportunities presented themselves like Salesforce.
Enduring companies don’t stop during downturns, and great companies will be built. It’s likely most of them will share these traits.