Learning the Lessons of Nortel

Nortel's a reminder that owning tech can be such an incredible losing proposition. For much of the 1990s it was a given that Nortel was going to be the biggest competitor if not the destroyer of Cisco (CSCO - commentary - Trade Now), Motorola (MOT - commentary - Trade Now) and certainly of Lucent and Alcatel. It seemed to have the inside track on everything that would make the Internet better and faster and more compelling. It was the pin-up for the hottest in communications tech and you had to be long it at all times.

But Nortel became the poster boy for something else in the early 2000s, the sign that I keep on my PC -- "Accounting irregularities equals sell." While Nortel's business, along with all of the network and dot-com-related businesses crashed badly in the wake of Net crash, Nortel was never able to get back in the game because of some accounting irregularities so broad that it brought down all of the executives who ran the company.

I know. I bought the stock for Action Alerts PLUS when I saw the initial scoundrels were thrown out and I thought they could put the woes behind them.

It was a major mistake. The rot was too deep, the executives too in on it.

Nortel never came back from that accounting morass. In many ways Nortel was every bit as bad as Enron and Worldcom.

But there was one difference. At the time the accounting disaster occurred, Nortel was at the top of its technological game. No one thought it was being left behind. No one thought that NT was anything but the top of tech, a true rival even though its accounting problems were deep.

But they lost their step and they were history. (You could argue that the same thing happened to Lucent, too -- part accounting morass, part tech.)

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