Lessons from Meta’s 2022 Crash: Navigating Market Panic with Rational Investing
Who could forget 2022, when Meta's stock price fell below $90?
I was in shock. Meta, a company with annual revenue exceeding $116 billion, minimal debt, and a cash-rich balance sheet, faced a sell-off unlike anything I'd seen before. The catalyst? Mark Zuckerberg's ambitious push into the metaverse.
What Happened to Meta?
The metaverse—a virtual universe Zuckerberg envisioned as the next big tech frontier—was a polarizing investment. Shareholders viewed Meta's substantial spending on R&D as reckless, creating uncertainty about its financial future. This sentiment drove the stock from its high of $350 to under $90, sparking widespread panic.
At the time, Meta was already a dominant force in the tech world, generating billions in revenue from advertising on platforms like Facebook, Instagram, and WhatsApp. Even so, the decision to pour billions into the metaverse, with no guarantee of a return, led many investors to question whether Zuckerberg was making a monumental mistake.
As an investor, I had to evaluate: Was this a legitimate concern, or was the market overreacting? My analysis said no.
Lessons from the Past: Nike vs. Under Armour
This wasn’t the first time I’d witnessed irrational market behavior. Back in 2015–2016, Nike faced a similar challenge when fears of Under Armour taking over its market caused a significant drop in its stock price. Nike's stock fell by 30% through the course of the year. Investors were convinced Under Armour would dominate the athletic wear market, but Nike's established brand, global presence, and strong market position weren’t easily replaced.
Though this situation felt like a crisis at the time, Nike was not only able to weather the storm, but it also came out stronger. In hindsight, this drop was a huge buying opportunity. Under Armour, on the other hand, struggled to maintain momentum. Nike regained its footing and proved the market wrong. This was a key lesson in how markets often misprice long-term value based on short-term panic.
I’ll delve deeper into the story of Nike vs. Under Armour in another blog, as it’s a fascinating example of market misjudgment. For now, if you're curious, you can read more about it here.
Why I Bought Meta at Its Lows
My first purchase of Meta stock was at $200, but it was painful watching it drop to $100—a 50% decline in value. For a moment, it felt like my investment was doomed. As any long-term investor will tell you, seeing a stock lose half its value is a gut-wrenching experience. But I didn’t let fear dictate my decisions.
Instead of panicking, I did what I always do in times of uncertainty: I went back to the fundamentals.
At the time, Meta was one of the largest social media companies in the world, with nearly 3 billion active users across its platforms. That’s almost half the world’s population. Even if the metaverse didn't pan out, Meta's core business was solid. Advertising revenue from platforms like Facebook, Instagram, and WhatsApp had become a critical part of many businesses' digital marketing strategies. So, despite the public's concern over the metaverse, I believed Meta's business was too strong to fail.
The Price-to-Earnings (P/E) ratio also caught my attention. At the time of the stock's drastic fall, Meta’s P/E ratio was in the low teens, while companies like Google and Microsoft were trading at P/E multiples above 25. A P/E ratio that low for a company of Meta's size and profitability seemed like a significant discount—one that was hard to ignore.
Mental and Emotional Challenges of Buying and Holding
Buying and holding a stock through such volatility is not for the faint of heart. It takes a lot of emotional discipline to stick to your strategy when you're seeing your portfolio shrink before your eyes. The first time Meta dropped to $100, I thought I might have made a mistake. But I didn’t panic; I took a step back, looked at the facts, and reminded myself of the lessons I had learned from years of investing.
There were moments when I questioned whether I was too emotionally attached to the stock, but ultimately, I trusted my analysis. If the fundamentals of the company hadn't changed, I knew the market would eventually come around. And it did.
What I Learned Through This Journey
- Patience Pays Off: This experience reaffirmed the importance of long-term thinking. The markets are often irrational in the short term, but strong companies will prove their value over time.
- Focus on Fundamentals: Don’t be swayed by market sentiment or short-term price movements. Stick to the facts—revenues, user base, and profitability.
- Use Metrics Wisely: I’ve learned to rely heavily on key financial metrics like the P/E ratio to guide my investment decisions. Valuation is critical, even in volatile periods.
- History Repeats Itself: The lesson from the Nike vs. Under Armour situation was crucial in shaping my decision-making. History often repeats itself in the markets, and emotions tend to cloud rational judgment.
- Stay Rational, Not Emotional: Emotional decision-making can lead to missed opportunities. Even when the market is in turmoil, always base your decisions on research, not fear.
The Outcome
As of today, Meta’s stock is trading around $575—well above the $90 price point where I bought in. Looking back, I see that this was a prime example of how market overreactions can create opportunities for those willing to stay calm and stick to their convictions. The experience reinforced my belief in the importance of having a rational, evidence-based approach to investing.
Meta is not the only stock in my portfolio. It is part of a mix of 30 different stocks, each selected with careful research and strategy, which I will cover in later stages of this blog. For now, stay tuned for an upcoming blog where I’ll share why I decided to buy Dollarama in 2019—now one of my largest holdings.
Disclaimer:
This blog page is for informational purposes only and does not constitute financial, investment, legal, or tax advice. The blogger is not a registered investment advisor, financial advisor, accountant, or broker/dealer.
Nothing contained in this blog or related materials should be construed as investment or financial advice. The information provided is for general knowledge, entertaining, and educational purposes only. Please consult with a qualified financial professional, legal advisor, or tax advisor for guidance tailored to your specific circumstances and investment objectives.
The blogger has not been paid to promote any securities or services, and nothing on this blog should be considered an offer or solicitation to buy or sell any securities.
Always conduct your own thorough research or consult with a qualified professional before making any investment decisions. Past performance is not indicative of future results. The information and figures presented in this blog are based on the blogger's recollection and may not be entirely accurate.
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