NEW YORK ( TheStreet) -- The market's recent decline demonstrates what I've always known to be true; when the going gets tough, investors typically get going. This is despite the constant drumbeats about "having conviction." In that regard, investors in Rackspace (RAX - Get Report) have become prime examples of how patience, virtuous as it may be, is limited.
Some analysts have cited Amazon's (AMZN) recent weakness in its web services segment as reasons to be suddenly cautious on Rackspace. Although Rackspace did suffer a 2% decline on Amazon's announcement, we must then explain Rackspace's 33% decline since the end of September.
In fact, with shares now trading at around $36 per share, the value of this stock has been cut in half since the stock reached a high of $79.24 twelve months ago. Rackspace's rise and fall underscores the consequence of what has become known as "theme investing" in the stock market, particularly in the tech sector.
The buzz surrounding everything associated with "Big Data" and "The Cloud" was yet another example of "theme investing." The disruption propelled the likes of EMC (EMC) and Salesforce.com (CRM) to new heights. This then created a stir about the potential of Amazon's web services in the IT space, particularly in hardware.The disruption did come. And as Amazon stock soared higher each quarter on the backs of "old tech" like IBM (IBM) and Microsoft (MSFT), Amazon stock exceeded the comfort zone for some investors. That's when the Street turned to Rackspace as the "next best thing." Unfortunately, the "theme" now is Amazon suffering in web services, so the outlook for Rackspace must not be good. And investors have picked up on this lesson far too late, because Rackspace management must have had some idea. Rackspace's CEO Napier Lanham has sold over 1.6 million shares since November at around $42 per share. Not to mention the sales executed by other officers of the company. In the case of Lanham, in fairness, I will note that he still owns a significant amount of stock (about 900,000 shares). Plus, he controls another 3.6 million as general partner for HBSA (Home Business Success Academy), an academy for training and turning aspiring networkers and entrepreneurs into market leaders, according to its website.