The Waiting Game

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The Waiting Game
from SmartMoney University

Larry Ellison, the brash, billionaire chairman of Oracle, has two overriding passions: Asian culture and beating Microsoft. The one led him to establish vast Pacific Rim markets for his fast-growing database software company. The other drove him to establish Oracle as the company to beat in the business of providing big companies with software to manage their business processes.

In August 1997, however, Ellison's twin passions caught up with him.

From 1990 through the spring of 1996, Oracle stock soared a remarkable 750%. Had you jumped into the company's shares when they dipped that April to around 13 (adjusted for splits), your investment would have more than doubled over the next 16 months to $27 a share.

But then the bottom fell out. In late August of that year, a currency crisis in Thailand sparked a regional financial meltdown that eventually spread to markets throughout the world. As Oracle's Asian flank weakened, competitor Microsoft was attacking the database business domestically with its fast-growing NT operating system.

The next four months were pure hell for Oracle investors. The stock plunged 54% to a low of 12 1/2 in early January. For most of 1998, Asia's economies continued to muddle along and countless Oracle investors jumped ship. You might have been tempted to sell, too -- all of your gains from that April 1996 investment would have evaporated.

But if you had sold, you would have lived to regret it. By the time the summer of 1998 rolled around, Asia began to stabilize and sales data were proving that Oracle's database customers weren't defecting to Microsoft's NT product in any large numbers. It turned out NT software wasn't powerful or reliable enough for really big database users. Oracle began to post solid earnings numbers, which lit a new fire under investors. From late August until February of 1999, the stock rocketed 200% to more than $37 a share.

Sometimes patience is your best defense against market volatility. If you've done your homework and believe in your company's management, you should have faith that they can work through the inevitable rough patches that any business encounters. If something had changed fundamentally for Oracle -- if Microsoft's NT really was gaining, for instance -- it might have been time to bail. But in this case, Wall Street simply overreacted and those with a short-term perspective lost plenty of money.