In­vestors say heed the lessons of Icarus as Nor­tel marks 15 years af­ter peak­ing

The Guardian (Charlottetown) - - BUSINESS - THE CANA­DIAN PRESS

It was 15 years ago this month when Nor­tel Net­works’ shares hit an all-time high of $124.50 on Toronto’s stock mar­ket.

The com­pany’s sky-high stock made it by far Canada’s most valu­able com­pany at the time — with a mar­ket value that briefly sur­passed any of the banks and re­source com­pa­nies listed on the Toronto Stock Ex­change.

It didn’t last. A few months later, Nor­tel shares be­gan a bumpy slide that re­sulted in a worth­less stock and the bank­ruptcy breakup of what was once a global leader in telecom­mu­ni­ca­tions net­works.

Even though Nor­tel is now long dead, in­dus­try vet­er­ans say that, hu­man na­ture be­ing what it is, most in­vestors won’t learn from its boom and bust.

“I find in this busi­ness, peo­ple want to be­lieve,’’ says Ross Healy, chair­man of Strate­gic Anal­y­sis Corp., an in­vestor ad­vi­sory firm.

“Peo­ple are mes­mer­ized by ris­ing stock prices. They don’t ask if this is com­ing to a limit. The longer it goes on, the more that they are con­vinced that it’s go­ing to keep on go­ing on.’’

He pre­dicts that to­day’s high­fly­ing so­cial media stocks will be crushed — just as other tech stocks were in the past — be­cause in­vestors are will­ing to over­pay if they ex­pect a com­pany’s spec­tac­u­lar growth will con­tinue into “the in­fi­nite fu­ture.’’

Thomas Cald­well, who has had a long in­volve­ment with the Toronto Stock Ex­change as the founder of Cald­well Se­cu­ri­ties, says he thinks the next cri­sis will come from “the ETF world’’ — ex­change-traded funds that mimic mar­ket in­dexes like the S&P 500.

“You may have some heavy weight­ings in some big com­pa­nies that just aren’t go­ing to be there some years from now,’’ Cald­well says.

Nor­tel’s large weight­ing on the Toronto mar­ket’s bench­mark in­dex — as much as 37 per cent of the en­tire TSE 300 in­dex — was un­usual and prob­lem­atic, but not the fo­cus of re­forms go­ing on be­hind the scenes dur­ing the same time pe­riod.

“Chang­ing the TSE 300 to what be­came the S&P/TSX com­pos­ite was a fairly long, drawn-out ef­fort and a lot of dis­cus­sion,’’ says David Blitzer, who is man­ag­ing di­rec­tor of S&P Dow Jones In­dices.

“Clearly Nor­tel was on ev­ery­body’s mind when it was go­ing up ... but in my rec­ol­lec­tion they were two sep­a­rate is­sues.’’


A se­cu­rity guards pa­trols Nor­tel Net­works’ cor­po­rate head­quar­ters in Toronto, Ont. on Jan­uary 14, 2009.

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