In a shocking turn of events, cybersecurity company CrowdStrike experienced a widespread outage following a bug in its recent software update, causing panic among investors and resulting in a significant drop in its market capitalization. With a reported 30,000 subscribers, the outage’s impact was felt far and wide, making it a black swan event in the technology sector.
Black swan events, characterized by their unpredictability and wide-ranging consequences, have historically had outsized financial implications. CrowdStrike’s situation is no exception. Over the course of a week, the company’s market cap plummeted by approximately $20 billion, wiping out a significant portion of its value. As of now, CrowdStrike’s market cap stands at around $63 billion, indicating a further loss of $10 billion since the initial sell-off.
Black swan events offer valuable lessons for investors. Past crises, such as the collapse of Bear Stearns and Lehman Brothers in 2008 or the recent COVID-19 pandemic, have shown that economies and capital markets tend to rebound and present opportunities for long-term investors. While paranoia is not advisable, it is prudent to continuously monitor the broader economic environment and not solely focus on individual stocks.
Selling a stock should be based on a loss of conviction in the company or its leadership, or when substantial gains have been realized and taking profits seems appropriate. In the case of CrowdStrike, the software glitch that triggered the sell-off was unforeseeable. However, considering the company’s strong performance in recent years and its potential for recovery, it is not necessarily a falling knife. Rebuilding trust with customers and investors will undoubtedly be a challenge, but CrowdStrike has shown resilience in the face of previous setbacks.
Although the reputational damage may linger, it is important to zoom out and consider the bigger picture. CrowdStrike’s best days may still lie ahead, as history has shown that patience can be rewarded. While the road to recovery may be arduous, both for the company and its investors, it is crucial to maintain a long-term perspective and assess the broader economic landscape.