The WeWork Debacle

In the annals of modern business, few stories illustrate the dangers of market darlings quite like the saga of WeWork. Once hailed as a revolutionary force in commercial real estate, WeWork's meteoric rise and spectacular fall serve as a stark reminder of Philip Fisher's sage advice: "Be extra careful when buying into companies and industries that are the current darlings of the financial community."

WeWork, founded in 2010 by Adam Neumann, rode the wave of the sharing economy and tech-startup enthusiasm. The company's pitch was seductive: flexible, hip workspaces for the millennial workforce, powered by community and technology. Investors, intoxicated by the promise of disruption and sky-high growth projections, poured billions into the company.

At its peak in January 2019, WeWork was valued at an eye-watering $47 billion. This valuation wasn't based on traditional metrics like profit or even revenue - WeWork was losing money hand over fist. Instead, it was predicated on the idea that WeWork wasn't just a real estate company, but a tech company revolutionizing the way people work.

This is where Fisher's wisdom becomes particularly pertinent. When an industry or company becomes the darling of the financial community, objectivity often goes out the window. It's like everyone at a party drinking the same punch – it might taste great going down, but the hangover can be brutal.

WeWork's story is a textbook example of the dangers of hype overshadowing fundamentals. The company's S-1 filing for its planned IPO in August 2019 revealed the stark reality behind the glossy facade. WeWork had lost $1.9 billion in 2018 on revenue of $1.8 billion. Its corporate governance was questionable at best, with Neumann wielding near-total control and engaging in dubious practices like leasing buildings he owned back to WeWork.

The market's reaction was swift and brutal. Within weeks, WeWork's valuation plummeted. By October 2019, it had fallen to less than $8 billion. Neumann was ousted, the IPO was shelved, and the company narrowly avoided bankruptcy thanks to a bailout from SoftBank.

The philosophy behind Fisher's quote is rooted in the understanding that popularity and profitability don't always go hand in hand. When an industry becomes "hot," valuations can become detached from reality. It's like a game of musical chairs – everyone's having a great time while the music's playing, but when it stops, not everyone will have a seat.

WeWork's fall from grace demonstrates the importance of looking beyond the hype and digging deeper into the fundamentals of a business. It's a reminder that just because everyone is talking about a company or industry doesn't mean it's a good investment. It's the investing equivalent of "look before you leap."

This cautionary tale is particularly relevant in today's market, where we see similar patterns of exuberance around certain sectors like AI, cryptocurrency, or electric vehicles. While these industries may indeed shape the future, investors would do well to heed Fisher's advice and approach with caution.

In the end, WeWork's story is a powerful reminder that in investing, as in life, if something seems too good to be true, it probably is. It underscores the importance of independent thinking and thorough due diligence, especially when it comes to the market's current darlings. Because sometimes, the best investment decisions are the ones you don't make.