Students of business history in the U.S. know the Eastman Kodak Company well. Its predecessor firm was originally founded in 1880 by photography pioneer George Eastman, and through a series of innovations in film, cameras and photographic reproduction, Kodak became a titan of U.S. business. By 1970 the Rochester, N.Y.-based firm was firmly ensconced in the Fortune 500, ranked #27 and generating $400 million in profit on just over $2.7 billion in annual revenues.
While younger investors may not know Kodak from a hole in the ground, it’s been front and center in some fairly profound investing teachable moments. In the 1960s it was a charter member of the so-called “Nifty Fifty,” large-cap U.S. companies that investors came to regard as “one-decision” stocks because of their seemingly limitless growth prospects. That is, until the bear market of 1973 decimated Nifty-Fifty share prices. Value investors may not have needed the reminder, but the Nifty-Fifty experience reinforced a powerful verity: Even the best companies are not bargains at any price – what you pay matters to successful investing.
Kodak went on from that point to bigger and better things – at its peak employing 145,000 workers and generating $14 billion in annual revenue – but by the advent of the 21st century the company was on its way to becoming a poster child for businesses submerged by an unceasing wave of technological disruption. As the consumer market for cameras and other products related to film photography declined in the face of digital competition, despite its best efforts and billions of dollars spent on efforts to diversify, the company in 2012 filed for bankruptcy. Profound investing lesson #2: Sometimes the mean doesn’t revert – misjudging those times can blow a hole in an investment portfolio.
Learning from Kodak didn’t end there, however. The company exited bankruptcy and has been making a go of it as a supplier to commercial imaging and printing markets, most of which remain under secular pressure. It made big news early this year, however, when it announced plans to launch Kodakcoin, a “photocentric cryptocurrency” meant to somehow facilitate image-rights management for photographers and photo agencies. Announced at the peak of the cryptocurrency craze, the company’s shares – of which 256,000 traded hands on the day before the announcement – more than tripled over the next two days, when average trading volume averaged nearly 90 million shares. Fast-forward to today and Kodak shares (surprise, surprise) have returned to exactly their price prior to the in-retrospect rather desperate Kodakcoin bombshell. Investing lesson #3: Mr. Market can at times be certifiably insane – use it to your advantage.