Greenberg. IDT-iots May Want to Heed Lessons Learned From Iridiots
By Herb Greenberg
Senior Columnist
7/15/99 6:30 AM ET
Whenever you wonder why I write what I write and react the
way I react, especially when I run those stupid emails from
IDT-iots -- IDT (IDTC:Nasdaq) investors who lambaste this
column for questioning their company -- don't forget the
Iridiots.
"Iridiot" is slang for Iridium (IRID:Nasdaq) investors whose
hostility sent this column's Hostile React-O-Meter careening
when I first questioned back in May whether the news on
Iridium was about to go from bad to worse. Iridium initially
slid into the mid-single digits before bouncing back three
weeks ago into the midteens. The stock's rise caused
Iridiots to come out of the woodwork, including one who
asked: "Are you ready to eat your last negative words about
Iridium??? Have you seen what it's doing lately? Looks
pretty green to me in them thar hills, stars, whatever!!" (That
prompted the headline: "Iridium's Stock Is Back, and So Are
the Iridiots.")
The rest, as they say, is history. Yesterday Iridium sagged 1
7/16, or 18%, to 6 3/4 after Motorola (MOT:NYSE), Iridium's
biggest investor, said it wouldn't commit any more money to
the struggling satellite company unless it was joined by
other investors and lenders. Motorola said the only options
for Iridium, at this point, are a) an out-of-court restructuring;
b) an in-court restructuring and bankruptcy; or c) a
bankruptcy and liquidation. The betting is that it'll be either
"a" or "b," but none of the choices are likely to be good for
Iridium investors.
Also yesterday, Credit Suisse First Boston analyst Cynthia
Motz joined the list of analysts who have cut their
recommendations to a sell from a hold. After a restructuring,
the stock may very well become a "bagel" (Wall Street lingo
for zero) if all or most of a new class of stock goes to current
debtholders, as is expected.
More is likely to be known within a month. In lieu of a
sudden cash windfall, Iridium is generally expected to miss
an important debt payment Thursday, and then it has a
grace period that lasts until mid-August. And don't be fooled
if the stock is resilient in coming days. Iridium is heavily
shorted, and the stock will actually hold up if and when
short-sellers cover their positions, as they buy the actual
Iridium shares they had borrowed to short the stock.
Moral of this story: IDT-iots, beware.
Short Positions
Calling all cults: After reading this column's
back-and-forth with IDT investors, California clinical
psychologist Jerome Silverman wrote that he believes it's
clear the IDT-iots "reflect an additional classic behavioral
principle. This has to do with external support for one's
pathological condition. If an individual with pathological
ideation is surrounded by people who challenge the
pathological position there will be a reasonable probability
that the position will be re-evaluated, rejected and a healthier
one put in place.
"However if the pathological position has external supports --
people who similarly hold that position -- there is often very
little chance to have that position re-evaluated, let alone
having it modified in a healthier way.
"This is why cults are so powerful an influence on their
members. It seems that for many buying a stock is similar
to joining a cult. Instead of being investors -- open, alert,
considering all information concerning their holding -- they
become cultists, cheering the stock in spite of negative data
and wanting to kill the messenger who brought it.
"They find cult mates on Internet message boards and in a
kind of ritualistic behavior, post wishful predictions like 'up
10% by next month' or 'big takeover coming.' These posts
have nothing to do with fact, but by posting them the action
itself serves to reassure them and other cultists that all is
well and that they have done something in the service of the
cult -- e.g. the post and prediction.
"This is similar to primitive peoples who during a drought do
a rain dance. It gives them something to do to validate their
beliefs and it reaffirms the cultist hope."
Which is where the "springs eternal" comes in.
Back on the Iridiots: Reader Patrick Drollinger wonders
if I've received any apologies from any Iridium investors.
Answer: No, but I have from investors in other cases where I
had stirred the cults. (Several recently, in fact, from former
investors in CHS Electronics (HS:NYSE).)
Finally: "When are we going to see the IPO for Hostile
React-O-Meter.com?" asks reader David Wilfinger.
"Perhaps we could have five lead underwriters and C. Byron
as the covering analyst ... just a thought."
Chris Byron as covering analyst? No way! He even scares
me! (Glad I'm on his side.)
Herb Greenberg writes daily for TheStreet.com. In keeping
with TSC's editorial policy, he doesn't own or short individual
stocks, though he owns stock in TheStreet.com. He also
doesn't invest in hedge funds or other private investment
partnerships. He welcomes your feedback at
herb@thestreet.com. Greenberg also writes a monthly
column for Fortune.
Send feedback to letters@thestreet.com. |
