Seven Lean Years and Other Lessons from the Last Tech-Stock Correction

The ongoing correction in equity markets has, so far, left few safe harbors for investors. Shares of technology firms have been particularly whiplashed by the sudden reversal of fortune. From Adobe to Zoom — and all the letters in between — many stocks have fallen precipitously from recent highs.

While the share of U.S. technology firms with a substantial drawdown has risen fast, it is not yet at the level of the early-2000s technology crash. It is, nonetheless, worth examining what lessons we might pull from the wreckage of that time.

Lesson one: Recovery was long for the few that survived

Few firms managed to fully recover from their large losses. Of those that lost half their value between 2000 to 2003, less than 20% ever surpassed their pre-crash highs again and took an average of seven years to do so. Importantly, most of these firms survive as listed entities today.

The rest of the far-fallen firms were not so fortunate. In addition to continuing to shed value, most were acquired, went bankrupt or were delisted from indexes in the ensuing decade.

Lesson two: Recovering firms had common characteristics

The firms that did recover tended to be more defensive — i.e., displaying larger size, higher quality and lower risk — in the immediate aftermath of the crash.

While there’s no telling whether history will repeat itself, these lessons could prove useful as investors navigate through another volatile period for tech.