Your Expectations Versus Reality

I remember learning about tech stocks in my high school economics class. It was the late 90’s, and the internet was a new thing for me (and us). I remember my friends and I would stop by the local computer store after school and book the one computer that was connected to the internet just so we could see what the fuss was all about. Sausage Software was the company that was making all the noise at the time – a Melbourne based company, who I believe, were in fact based in Doncaster (I could be wrong!).

At its peak, just before the dot com crash in April 2000, Sausage shares hit $40, briefly valuing the company at close to $1 billion. A year later the stock had fallen to $1.80.

The company no longer exists.

Here’s a rare interview by Business Sunday of the founder, a 23 year old Steve Outtrim. It’s funny how the tech scene hasn’t really changed since the mid 90’s – kids in crazy t-shirts, baseball caps, roller blading into the office.

You never know what’s around the corner, and how these things will play out. I recently saw these two posts on Twitter, which caught my attention. They are truly interesting facts.

Hindsight is a wonderful thing. And for all the headlines these companies are making, investors would have had to go to hell and back in order to participate in the triumphs of these two extraordinary companies. Sure, it’s all smiles and champagne for Bezos and Hastings, but allow me to shed some light on this journey:

Amazon

  • The stock drops 50% in 1999.
  • In fact, the stock has seen multiple drops of 50%+.
  • Later in 1999, the stock tops US$107 and tumbles to US$7  over 2 years – a 93% decline.
  • It took another 10 years to get back to where it was in 1999.
  • In 2008, the stock fell 60%.
  • In 2015 the stock fell another 25% over the course of 12 months.

Netflix

  • Within 12 month of floating, the stock fell 55%.
  • Through 2005, the stock fell 76%.
  • During 2012, the stock fell 81%.
  • Through 2015/2016, the stock fell another 37%.
  • Most recently the stock fell 35% during 2018.

The point I’m trying to make is that these headlines are written in a way that appear as though the company went from US$1 to US$1,000 just like that. The reality is that most investors would not have been able to handle the volatility that comes with these gains. Human beings are wired in such a way that we fear losses more than we enjoy gains. And because of this, I am confident you would have sold your Amazon and Netflix position after your 55% decline. Or the 60% decline. Or the 81% decline. Or the 93% decline. You get my point (hopefully).

Sausage Software was also worth billions. And just like that, the company is gone and Steve Outtrim is now making headline for different reasons.

I’m not saying Amazon or Netflix are terrible companies, in fact quite the opposite. I think they’re great businesses, which I am a customer of both. I just think that investors need to avoid falling in love with these fantasy headlines – they never happened as easily as they’re made out to seem.