Editor’s note: Yesterday morning, the Bureau of Economic Analysis showed that the U.S. GDP contracted for the first time since 2022.
The most common rule of thumb for what constitutes a recession is two consecutive quarters of negative GDP growth. We now seem to have one.
What happens next is still up in the air. We’re only a month into this quarter. But this news has investors looking for answers that aren’t on Wall Street … yet.
That’s why it’s the perfect time to share how certain investments can actually thrive in times like these. Here’s Chris Graebe on four such stories …
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| By Chris Graebe |
Startups have long been regarded as the epitome of innovation and resilience.
Throughout history, numerous successful companies have emerged from the ashes of economic downturns, proving that hard times can serve as a fertile ground for entrepreneurial growth.
With economic uncertainty looming on the horizon, I wanted to explore the stories of four iconic startups that were born and thrived during challenging economic periods.
My goal is to highlight why I believe investing in startups during hard times can be a smart investment strategy for a portfolio.
Let's dive into four startups that were birthed during "hard times." Each one is a lesson on what to look for when selecting a startup.
Leveraging Changing Market Dynamics
Founded in 2008 during the global financial crisis, Airbnb (ABNB) is a prime example of a startup that flourished amidst economic uncertainty.
Cofounders Brian Chesky, Joe Gebbia and Nathan Blecharczyk turned their idea into a multibillion-dollar business by capitalizing on the sharing economy and offering alternative accommodations to budget-conscious travelers.
Their success demonstrates that startups can leverage changing market dynamics to find unique opportunities for growth during recessions. Airbnb went public 12 years later in December 2020 and brought huge returns for those early investors.
Unfortunately, to get those gains, you would have had to get in before its IPO. That’s usually when the biggest gains are made. But that’s not always the case.
Ability to Adapt
One of the most iconic American companies, General Electric (GE), was founded by Thomas Edison in 1892, during an economic downturn known as the Panic of 1893.
Despite the challenging economic conditions, GE persevered and became a global leader in various industries — including electricity, aviation and healthcare. The company's ability to adapt and innovate during tough times allowed it to thrive and become a powerhouse in the corporate world.
Fun Fact: General Electric was one of the original 12 companies listed on the newly formed Dow Jones Industrial Average back in 1896. GE remained a part of the index for 122 years, though not continuously.
Obviously, this is one investment that has provided enormous returns to investors over the past century.
Innovative Products Trump Economic Uncertainty
Microsoft (MSFT) — now one of the world's largest technology companies — was founded by Bill Gates and Paul Allen in 1975 during a period of economic instability.
With the United States facing high inflation and unemployment rates, the tech industry was not seen as a safe bet. However, Microsoft's innovative products and focus on personal computing revolutionized the industry and propelled the company to unprecedented success.
Microsoft went public in 1986 and opened up at $28 per share. Even after several stock splits, its share price today is $390. If it hadn’t split, its price would be $112,320. That represents a 401,043% gain!
Clearly, IPO investors have been winning big since 1986. But imagine how well the early angel investors have done.
The Power of Emerging Technologies
Launched in 2009 in the midst of the Great Recession, Uber (UBER) disrupted the traditional taxi industry by introducing a convenient and cost-effective transportation alternative.
Despite the challenging economic climate, Uber grew rapidly — attracting both customers and investors.
By capitalizing on the gig economy and leveraging emerging technologies, Uber became a global transportation giant. This showcases the potential for startups to thrive even during economic downturns.
Uber went public ten years later in 2019 and is valued at $168 billion. Early investors literally became billionaires.
Fun Fact: Uber actually had the biggest one-day loss in the market's history as a company that just went public. It has since become profitable and seems to continue to grab market share.
Important Takeaway
History has shown that startups can not only survive, but also thrive during difficult economic times. Companies like Airbnb, General Electric, Microsoft and Uber emerged as industry leaders by leveraging innovation, adaptability and a deep understanding of changing market dynamics.
When the chips are down, and everyone is scared, founders and innovators see the opportunity to disrupt.
We are in the middle of the next wave of innovation and disruption, which I'm personally excited about. This is why I believe investing in startups during hard times can be a smart investment play.
Now, as I always say, startup investing is probably one of the riskiest ventures out there. So, it's not smart for anyone to push all they have into startups as their solo investing strategy.
But this brief look at the history of some of the world’s most successful startups shows that there are mega profits to be had, even when nothing else is going right.
Happy hunting!
Chris Graebe
P.S. Today is the last chance to find out about another outlier that performs well in good times and bad. With only a few hours left, here’s Dr. Martin Weiss to explain it.
