What The Iomega Saga Can Teach Us
By Roger Nusbaum, AdvisorShares ETF Strategist
On January 21st a staff writer at TheStreet.com posted an article titled Stock Market Bears Are The Dumbest Thing on Wall Street. Reading a headline like that, a cynic might immediately think of the famous BusinessWeek cover from 1979 proclaiming the Death of Equities or Irving Fisher declaring equites having reached “what looks like a permanently high plateau” on October 16, 1929. Many market participants believed in the new paradigm of the internet age in the late 1990’s.
You’d think that so many past examples of times not being different would prevent anyone from drawing such a conclusion, but this insight sometimes only comes with experience. By appearances, the author of TheStreet piece may not have been covering markets very long.
The last time I was on CNBC was for a bull/bear debate for a then recently IPO’d wearable fitness device stock about three years ago (naming names is tricky for compliance reasons). I was the bear on the name. The bull, very coincidentally, was from TheStreet.com and his argument focused the growth the company had enjoyed before the IPO, they did sell a lot of devices and there is no questioning the need for improved fitness.
My bear argument focused on a few things. I laid out some numbers as to why I did not think past sales were repeatable due in part to some level of saturation, but it seemed like the type of gadget that could be replaced by an app. The device being a gadget, even a very good gadget, is important, the history for gadget stocks is quite dismal. Perhaps the most famous gadget stock was Iomega, the maker of external drives back in the mid-1990’s that for a time was a white-hot stock that then fizzled out. This arc tends to repeat over and over. Subsequent to the fitness device another hot gadget IPO, a camera maker also imploded. Smartphone makers might be an exception that proves the rule as smartphones could easily replace a fitness gadget, a camera along with many other things. When I got back from the studio that day and watched the segment, I saw that my adversary perhaps was not engaged in markets during the Iomega heyday.
This not an attempt to play the old man card (or middle-aged man card) as it doesn’t take too much effort to understand that this time isn’t different. With that as your starting point, I think you have a much better chance for success and here I would define success as avoiding that which is avoidable like believing there will be no more bear markets, allowing your portfolio to have 40% in one sector (like tech 20 years ago and financials ten years ago), taking an unnecessary risk on a gadget stock and you can probably come up with other examples.
I would say any opportunity you can find to make investing a little easier is one you should take even if more often than not you find that the things that make the task easier are things that you shouldn’t do.
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