I’m a great believer in the adage that although history doesn’t repeat, it often rhymes. So today I want to review the story of the rise and fall of EMC … and see if we can learn something from it.
The story starts in 1936 when a boy named Richard Egan was born to an Irish family in Dorchester, a working-class Boston neighborhood.
He enlisted in the Marines at 17, just as the Korean War was winding down, and learned to fly helicopters.
He then returned to Boston, and graduated from Northeastern University in 1961 with a degree in electrical engineering.
A year later, he was on the team that helped develop Project Apollo memory systems for NASA. In the years that followed, he worked at Lockheed Martin, Honeywell and Intel.
In 1979, he joined with a colleague named Roger Marino to found EMC, using their initials for the first two letters and the all-purpose C to suggest a larger company.
EMC started as an office-furniture reseller, but that was mainly to get a foot in the door of the electronics distribution business, a fast-growing industry where it quickly found a niche. Soon enough, the company cut out some suppliers by becoming a manufacturer of memory boards. Prime Computer was a big early customer, and was soon joined by Apollo, Data General, Digital Equipment, Sun and Wang. (Today all are either gone or acquired.)
EMC continued to grow, by both innovation and acquisition, always working to provide the world’s biggest and fastest computers with newer and better data storage solutions. It had an aggressive corporate culture, which reflected the personality of the man at the top.
In 1986, EMC went public. In 1994, sales surpassed $1 billion. In 1998, the Boston Globe named EMC the “Company of the Decade.” And in 1999, the NYSE named EMC the “Stock of the Decade” for best 10-year performance.
I remember those days well, not only because the bull market was fun but also because people who had never invested before (including my barber and my lawn guy) were talking about their investments. And here in Massachusetts, many of them were buying EMC, a well-known high-quality local company.
On October 28 1998, Cabot Market Letter recommended EMC (the stock). That was just 13 days after the end of a particularly punishing broad market decline. The fundamental economic news was absolutely horrible. But the market was rebounding strongly and our market timing signals gave a buy, so we jumped on it. And it worked out very well for many of the stocks we bought then, including Dell Computer, Medimmune, Charles Schwab and Yahoo!
After 13 months, 0ur profit in EMC was 213%.
Then in March 2000, the stock market topped out. Spending on technology, which had soared the year before in preparation for Y2K, shrank dramatically, and tech stocks went into a tailspin.
EMC actually kept climbing into October, peaking at 103. But when it fell, it fell hard, plummeting all the way to an eventual low of 4 (!) in 2002.
Richard Egan got out of the company relatively early in the decline, retiring on January 17, 2001.
And he didn’t stay idle long; just two months later, he was nominated by President George W. Bush to be the U.S. ambassador to Ireland. He served as ambassador from August 2001 to December 2002, but resigned–apparently, his take-charge aggressive personality was not suited to the give-and-take and compromise style of the diplomatic world.
EMC eventually recovered. Yes, revenues had shrunk 39% from 2000 to 2002, but they’ve grown every year since. Today, EMC remains the largest provider of data storage platforms in the world, with $15 billion in revenues in 2008. And today its stock (like other data storage stocks) is healthy, as consumers and businesses open their wallets once again.
Richard Egan said he sold much of his stock early in the decline. On its 2005 list of the Forbes 400, Egan was ranked as the 258th richest American, with a net worth of approximately $1.3 billion.
But just last month, on August 28, Richard Egan committed suicide (with a shotgun) at his Boston Four Seasons condominium. He’d been suffering from Stage IV terminal lung cancer as well as emphysema and diabetes, and apparently chose to remain master of his life to the end.
So what lessons can we take from this?
1. Never underestimate the power of storage technology stocks to make huge moves, both up and down. EMC made a lot of investors rich. But those who bought the stock too late, and held it too long, got hurt.
2. Note that technology is always changing, and in data storage, the technology leader has an advantage. EMC usurped IBM because it offered a technological advantage. Today, younger companies are nipping at EMC’s heels.
3. Never underestimate the power of a market timing signal. Our October 1998 buy signal proved a big winner, as has our March 2009 buy signal.
4. When you’re rich enough, you have more control over your life. And because you don’t need to worry about life insurance, you’re free to take control of your death as well.