Is it 2009 Yet?

When talking about the stock market, a friend of mine recently joked, "So I take it, you too are now a long-term investor?" He joked, because as two non-savvy investors, we have lost so much since the start of this year that it almost seems irrelevant to sell now. Assuming you performed better than us (not hard to do) and on par with the major indices, the start of this year has probably not treated you well either. The Dow Jones Industrial Average has lost just under ten percent in the first three weeks, of which we’ve had fifteen trading days, 2/3 of which have seen losses including seven with triple digit slides, i.e. almost one out of every two trading days. Technology stocks, the championed safe haven during this period of credit and housing uncertainty have stirred up memories of 2002 with their performance thus far this year. Not just sixty days ago reputable analysts felt good about Bidu at $380 or Google at $740. As of earlier this week, though, Bidu traded just above $270 and Google around $585. Apple, always the competitive company decided that they couldn’t have Bidu and Google hogging the loss spotlight. Their stock received a few swift kicks where the sun doesn’t shine this month, first with their underwhelming product launches at MacWorld and then after delivering extremely solid fourth quarter 2007 numbers.

On Wednesday of this week, Apple’s plunge that intra-day exceeded 15 percent helped them turn a not too shabby 22% year to date loss into a 33% bruising. Always more fun when personified, we’ll say that Bidu and Google decided to get their lemming on, and following on the heels of Apple’s big plunge, they turn their already hefty here to date losses – 30% and 15% respectively – up a notch. Google at one point yesterday gave back more than 30 points and Bidu again in double digits; but thanks to a strong end of day rally on financial stocks, both closed lower but not devastatingly so. Hard to believe, but here we are three weeks in BIDU has shed 32%, Google just twenty percent, and Apple a pack leading one-third. Investors giveth, and they taketh away. Granted, looking at non-tech stocks you wouldn’t have guessed that just a day ago would turn out so ugly. The Dow had its best day so far this year, and despite Apple’s best efforts, the Nasdaq turned in a positive performance.

The analysts might have meant tech startup valuations instead of tech stocks when talking about safe havens. Widget maker Slide, who has several Facebook applications in the Top 10 and sees somewhere around 20 million active users daily, took in a very healthy $50 million not long ago. Their funding represents more than ten times the average amount put into similar companies, but that works out as they received a valuation well north of ten times the average. Much credit goes to Slide founder Max Levchin who recycled the business model that made him exorbitantly wealthy from his founding of PayPal – become a key piece of functionality to a major site. Here is a company, though, that has no users of its own, much how an ad network has no real value if the sites whose inventory they occupy take them down, yet managed to receive a valuation greater than Advertising.com’s sale price to AOL and within a stone’s throw of MySpace’s when Fox bought them. With sixty-five employees, their $550 million valuation also makes them more valuable per head than Apple. Popular as social media sites such as Facebook are, it’s not known whether they will become the next Yahoo, instead of the next Google, which makes this bet on a value-add but non-integral piece eyebrow raising. Unlike PayPal’s relationship with eBay, removing Slide’s applications from Facebook doesn’t make Facebook that much less functional, i.e. it’s a value add instead of a integral component.

Speaking of investors giveth and taketh, which will apply to some start ups this year, prior to this year, and even including the mini sell-off in December, investors really gave. Focusing back on the big, public guys, for 2007, Google went up 48%, Bidu a whopping 238%, and Apple a still stellar 130%. We compare that to 2006 where Google gained a more modest 18%, Apple 18%, and Bidu a still phenomenal 79%. Back another year and we get quite a different story Google up 115% for 2005, Apple up 124%, but Bidu down almost 50%. Going back to 2004, Google’s inaugural year, in its four and half months of existence as a publicly traded company it grew a very healthy 78%; Bidu didn’t exist until August 2005, but Apple rolled off yet another stellar year, up 200% for ’04. If you are a long-term investor, things have worked out well for you, especially if you’ve owned Google and Apple. Listening to radio show Marketplace, they explain how we see much greater gains and dips on a daily basis than has been the case. And that is why this year could be much different than 2002’s recession. Companies’ numbers have started to take the hit of the credit crunch, but we’ve only scratched the surface of the economic fallout. Which means, buckle you seat belts, we will have a roller coaster ride.

If you’re in the market,and you didn’t do what K&A Asset Management in Napa California did and go to all cash at the October highs, it really is about being a long-term investor. Given what has happened in the past it might take a year or more to see the numbers we saw just three weeks ago, and that will be a hard pill to swallow after not just months of growth but years of growth at multiples that assumed the same if not better growth. It’s not quite a bubble, but when take 1 and double it and double it again so on, losing 30% of that is a large number. Most of us didn’t get at one because it wasn’t sexy; we got in after it went up and up because it looked sexy. The best we can do now is focus on our business; that’s the best long-term investment possible. Then, realize the the ups and downs of the market only tell us how others might feel, but doesn’t have to impact how we do. Just ask those that have focused on building cash flow positive businesses and didn’t over extend as times went up. Those that went up only because the market went up and people spent freely, they will struggle.