To understand Nortel you have to understand how safe it felt. This was not a speculative tech stock; it was the bluest of Canadian blue chips, a century-old industrial name that happened to make the equipment running the world's telephone networks. At the height of the dot-com boom it grew so large that it made up something close to a third of the value of the TSE 300 — the index. To own the Canadian market was, to a remarkable degree, to own Nortel.
That is the part that should frighten a careful investor, because the careful investor is exactly who got hurt. Pension funds held it because it was the index. Retirees held it because it was steady. “Diversified” Canadian funds were, without anyone quite deciding it, enormous concentrated bets on a single telecom company.
The dot-com crash took the share price from above C$120 to a few dollars; an accounting scandal took what credibility remained; and in January 2009 Nortel filed for bankruptcy protection and began selling itself for parts. The common shares — the ones in all those safe, sensible portfolios — were ultimately worth nothing. The figure above is the end state of the country's favourite sure thing.
The Bureau's finding: “blue chip” is a description of the past tense, not a guarantee of the future. The biggest, safest, most index-defining company in a market is still a company, and companies can end. Case closed — the dial tone, at least, survived.