The Market's Crashing – Now What?
THE UPSIDE OF THE DOWNSIDE
It's not a good time to be a tech investor. So far this year, the NASDAQ (which tracks US-based technology companies) has lost about 25% of its total value, and some analysts are predicting that we may have not yet found the bottom. While we may not technically be in a recession yet, there are a lot of parallels that we can draw between what's happening right now and what happened during the Great Recession and the dot-com bust of 2000.
First, this crash was precluded by a period of incredible growth. The market outperformed even the most optimistic projections towards the end of the pandemic and billions of dollars of wealth was created.
Second, some of the best performers have been the hardest hit. The type of declines we're seeing in top-tier tech companies are typically reserved for corporations whose executives went to prison, or whose main products had to be recalled. Here are some of the biggest losers of 2022 so far:
Shopify -73%
Netflix -69%
Zoom -51%
Snap -50%
Pin -42%
Meta -41%
The third, and perhaps most important, hallmark of a dark period like this is that it's also where lots of good stuff happens. During growth markets everyone wants to talk about valuations, exits, going public, and stock prices. It seems like everybody is getting rich from this IPO or that coin, so there's very little incentive to tune out the noise and get to work. When the froth has been taken off the market, however, it becomes much easier to see which companies are building something valuable, vs which had been propped up on hype and pretty pitch decks.
The last time we had a major market downturn, the general sentiment was that the Internet-fuelled craze we had seen in the 2000s was now officially over and business would go back to the fundamentals (ie. brick & mortar).
But what actually happened? During the Great Recession, the engineers got to work. Amazon went from being a book retailer to the everything store. Netflix transformed from a mail order DVD rental company to the world's largest streaming company. Airbnb hustled its way from being a series of air mattresses to one of the world's largest accommodators.
There's no telling whether this market crash is going to be as deep, or as protracted, as either of the previous two, but what I'm willing to bet on is that innovation isn't about to slow down – in fact, I'm excited to see what we all get up to this year.
Areas of innovation worth paying attention to:
Easy crypto payments & transfers
High quality online education & training
Tech-enabled retail experiences
NFTs as everyday items (tickets, memberships, etc.)
Written by Conner Galway, Junction Consulting