WORKING PAPER
Preparing for the Economic Boom
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WORKING PAPER
Preparing for the Economic Boom
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CONFIDENCE CREATES A FEEDBACK LOOP Tech investment in the 90s lifted consumer incomes, which ricocheted into other corners of the economy. Both businesses and consumers began to invest more in capital expenditures as well as more immediate consumption, confident that the tide would continue to rise. And this spending fueled still further increase of fortunes as money circulated. Firms positioned to capitalize on this spending did quite well. |
DISRUPTION HAPPENS EVEN FASTER IN A BOOM As both established companies and venture capitalists plowed money into this fertile soil, and as technological and social trends created new opportunities for businesses, the pace of disruption accelerated fast. The trend wasn’t confined to internet technology but extended to biotech, financial services, and far beyond. Threats and inspiration from these disruptors spurred further investment by incumbents to ride the trend and guard against its dangers. |
LOCK IN BOOM GAINS WITH ORGANIC GROWTH, NOT IMPULSIVE M & A ACTIVITY The 90s were a great time for M&A investment bankers. Firms swallowed each other in a seemingly ever-quickening pace as they sought to harness the growth some had captured. A large percentage of these deals fared poorly. Companies that instead invested concertedly in organic growth – both within and outside their core business – typically spent less money and often built more sustainably successful businesses. Think Microsoft. |
USE A PORTFOLIO PLAN TO PROTECT YOURSELF AGAINST INEVITABLE BUBBLES Speculative bubbles ballooned and eventually popped. In a frothy economy, investors – be they corporate or retail – often seek the one big trend to bet on. Given that the most obvious trends are clear to all, this creates unsustainable asset prices in some narrow categories. The winning companies had portfolio plans to spread their bets and thought carefully about the options they were creating, planning for where their industries would be in a few years’ time rather than just catching the strongest breeze of the moment. Compare Time Warner’s disastrous merger with AOL to Comcast’s series of smaller, more sustainable bets at the same time. |
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