What Should Tech Investors Do Now? Stay Conservative or Risk It All?

Implications: First I agree with everything that Jason Zweig has stated.   In my opinion equity investors and investment bankers hate speaking to restructuring professionals.  Equity investors love certainty.  Investment bankers are looking for a transaction fee. Restructuring professionals live in a world of chaos and yes I love it.  Ignoring the situation ain’t gonna make it go away.

Analysis: I am not an economist I am a restructuring professional and a telecom professional.  I have been screaming recession since mid-2007.  When companies are in trouble they hire restructuring firms; which is what was happening in 2Q2007.  When independent restructuring professionals are hired you got big problems.  I hate to say this when companies start going downstream to small firms it means the large and mid size firms are either busy or are too darn expensive.  You know things are really bad when restructuring firms see trouble and no one has cash to pay them.  By the way either there are way too many restructuring firms or no one has cash to pay them.

Ignoring what is going on around you will not make things better.  My positions have been and always will be – “Be prepared” and “Hope for the best but prepare for the worse”.  You don’t have to abandon the telecom and tech sector.

That all being said.  The economy is like a roller coaster.  There are peaks and valleys or as I like to say there are peaks and wells.  Roller coaster lingo addresses the dips as valleys but geological valleys are sunlit.  Wells are not.  Even in the daylight, wells are dark and damp.  I prefer to use the word “well”.   Right now we are entering the well of the roller coaster.  The well is filled with darkness, which is akin to uncertainty.

How is telecom and technology going to be affected?  The answer is as badly as any other industry.  It is a mistake to believe that telecom and information technology will not be affected.  Businesses and consumers no longer have easy access to cash or credit.  I do not believe we have hit bottom yet.  If you look to the past for guidance, you will see that in the 2001 telecom/Internet meltdown the industry followed a cycle.  First the carriers spent less, followed by the weaker carriers closing shop, followed by vendors closing shop, followed by the larger carriers hunkering down and cutting cap ex spending drastically, followed by job losses, - all this coupled with creditors taking massive losses on the order of hundreds and hundreds of billions of dollars; all lost on bad loans and bad equity investments – and all on a global basis.  Eventually stabilization came to the sector.  Fortunately time healed the survivors and unfortunately people were hurt.  Tens of Thousands of telecom and Internet professionals were left unemployed and never returned to the industry.  Are there any lessons to be learned today from the mess of 2001?  Who knows?  Maybe.  According to pundits the current crisis is by far worse than anything we have gone through since the Great Depression.

I have had investors tell me they are not interested in the past they just want a hot tip.  I understand the need for greed but gosh have they ever heard the phrase “those who do not learn from history are doomed to repeat it”?

In my opinion there are two ways for telecom/tech investors to go: Invest in safe traditional asset classes or avoid traditional asset classes altogether.  If telecom and information technology investors are looking for something safe in the telecom/tech sector, they need to invest in something like large carriers.  The large carriers will continue to do business and hence make money; margins will be low but they will generate revenue. I mean large established carriers not startups.

I would avoid any tech company purporting to control intellectual property.  Companies that only have provisional patents might be safe to invest in but remember it can take 2 full years before the patent is fully granted.  Just because a patent has been filed or granted provisional status does not mean the patent can be commercialized into a saleable product.  Remember to perform a deep due diligence of any tech company.  If the tech company tells you they have signed contracts with carriers that is nice just ask for (in writing) the terms and conditions of the contracts.

My advice: don’t rush, ask questions, and perform deep due diligence.