Technology firms’ stock prices have declined recently, bringing memories of the early 2000s’ dotcom bust. For example, the value of Cathie Wood’s Ark Innovation ETF has declined by 75% from its peak. This downfall is quite similar to the 78% decline in Nasdaq from March 2000 to October 2002, which was followed by a recession.
How Companies Should Invest in a Downturn
With declines in tech and retail stock prices, rising inflation and interest rates, and persistent supply chain issues, so far, 2022 is turning out to be gloomier than anyone’s expectations about a Covid-recovery economy. How should companies respond to these economic developments? A natural impulse is to cut costs across the board by postponing new projects; reducing discretionary expenditures like research and development, marketing, and employee training; freezing new hiring; and reducing headcounts. And because digital stocks have suffered the most dramatic declines in stock prices recently, one may erroneously conclude that this is the end of the digital revolution, and some firms could start cutting back on their digital transformation efforts accordingly. The authors argue that these aren’t necessarily the best strategies for the current times. On the contrary, current developments offer unique opportunities to judiciously invest in the future. The authors present three ways managers can benefit from and even plan for growth in this volatile environment.