On Monday and Tuesday, I did one of those brutal out-and-backs to New York to give a lunch speech at Needham & Co.’s annual growth conference. Attendees were entrepreneurs, CEOs, venture capitalists, private equity managers and the like. Some 1,200 people jammed the Palace Hotel.
My speech was about the 1970s. Mark Twain says history doesn’t repeat itself, but it does rhyme, and I hear echoes of the 1970s. Then, stocks fell 45% from tip to toe from early 1973 to late 1974. The crash was foreshadowed by spikes in oil and gas prices. Easy credit and the Nifty Fifty bounce in big-cap stocks in 1972 had created scores of bloated conglomerates. Political uncertainty and fear were off the charts, as Vice President Spiro Agnew resigned in November 1973 and Nixon in August 1974, while the Vietnam War was heading for its final, ugly conclusion in April 1975.
The 1970s turned about to be a good decade for start-ups, which had learned to use new technology and also survive lean times. FedEx, Southwest Airlines, Microsoft, Apple, Genentech, Oracle and others were born in the 1970s. That will happen again. Growth companies that can exploit cheap technology and learn to stay alive during periods of deflation, inflation and delusion will lead America out of today’s muck.
One of the few good things about a San Francisco to New York quick round trip is the time it affords one to read. I spent both flights plowing through The Snowball, Alice Schroeder’s definitive biography of Warren Buffett. The chief criticism of The Snowball is its length–almost 1,000 pages–but I liked its rich detail. I especially liked how Schroeder got down the tenor of the times: Buffett’s youth in the 1930s and 1940s, life in Omaha in the 1950s and early 1960s, and the social turbulence and market turmoil of the late 1960s.
About the 1970s, Schroeder writes:
By October 1975, [Berkshire Hathaway] had been cut in half after trading at $93 just two years before. … The world continued to end. … The U.S. economy was by then in so much trouble that New York City was almost bankrupt; the country was in a mood of such profound pessimism that it affected people’s judgment.
The pessimism, then as now, was unevenly distributed. The year (1975) that gave us the fall of Saigon and a collapse in confidence also gave us the birth of Microsoft. The next year we elected one of the feeblest men to ever hold the office of presidency, a man, Alice Schroeder writes, “who wore Mister Rogers sweaters to promote energy conservation.” But we also got the birth of Apple and Genentech.
Berkshire Hathaway, as you might have heard, recovered too.
Post your comments below. How does the pessimism of 2009 rank with other sour years: 2001, 1990, 1982, 1973-75? Something else to think about: The most dangerous words in investing are said to be “this time it’s different.” This is usually said as a warning against excessive optimism during bull markets. Doesn’t it also apply to excessive pessimism?