January 7, 2000
Heard on the Street
Gilder's Words Can Carry
Weight Among Investors
By ROBERT MCGOUGH and DANIELLE SESSA
Staff Reporters of THE WALL STREET JOURNAL
George Gilder's newsletter often is so thick with technological jargon that
even some on Wall Street say they have a hard time understanding it.
But they have no problem comprehending this: Mr. Gilder's slightest
utterance can move stocks.
In December, the stocks of two companies he
mentioned favorably -- Novell and Globalstar
Telecom -- leapt when his Gilder Technology
Report newsletter was published online. Novell
stock added $2 billion in market value in a day.
(Novell also announced a small-business deal that
day, although Mr. Gilder's recommendation looks
as though it was the prime mover.) The first week
of the new year, however, has crimped some of his
gains.
His calls cut both ways. Michael Kotlarz, an
analyst at Donaldson, Lufkin & Jenrette, spent a
busy morning in November calming investors when Mr. Gilder proclaimed
the death of "fibre channel," a network storage technology -- the stocks of
fibre-channel device makers, such as QLogic, plunged.
Says Erik Gustafson, a growth-fund manager of $4 billion at Stein Roe:
"He has powerful effects on stock prices."
Sometimes, the effect isn't intentional. Mr. Gilder mentioned in passing two
companies in November that he wasn't even recommending -- both
stocks, Procom and Microtest, surged anyway. "That was embarrassing.
You really get worried when you feel the heat of the herd," Mr. Gilder
says. "When everybody agrees with you, you aren't leading anymore."
Last year, Mr. Gilder seemed to
have the golden touch. Six of the 10
best-performing stocks in the
Standard & Poor's 500-stock index
were favored by Mr. Gilder, a
60-year-old author, "futurist" and
former Republican speechwriter.
Among his picks: Qualcomm, which
made a little splash with a gain of
2,618% in 1999. The other S&P
winners he favored gained from
217% to 343% last year.
Mr. Gilder's recommendations,
including Qualcomm, Broadcom and
Sun Microsystems, have been hit hard so far this year. It is easy to imagine
new investors in his favorite stocks could get pounded in 2000. Mr. Gilder
insists it is a buying opportunity: "I think the ones on my list are going to
keep advancing for another five years. And other technologies, some of
them will fall back and not return."
Mr. Gilder has a highly unusual background for a technology and
stock-market guru. He wrote books extolling capitalism and entrepreneurs
-- "Wealth and Poverty" was a big seller in 1981. He says his interest in
entrepreneurs led him to an interest in radical new technologies. He
publishes his newsletter in a joint venture with Forbes magazine, to which
he has contributed articles; he also has contributed articles to The Wall
Street Journal.
The newsletter lists about 30 companies that embody what Mr. Gilder calls
"telecosm technologies." Mr. Gilder is a big fan of the Internet, but his list
contains no dot-com companies.
Instead, Mr. Gilder focuses on companies that use technologies he favors
to solve the bandwidth bottleneck -- the difficulty of sending voluminous
data to personal computers, cell phones and the like. These are the
companies that Mr. Gilder says will earn big profits from making
telecommunications bandwidth abundant. In much the same way, he says,
Intel has earned high returns by making transistors abundant on its
ever-denser microprocessors.
The price of a stock is almost no object to Mr. Gilder. Last year, that was
the perfect attitude. Doesn't he worry about a stock's price after it has
soared more than 2,600%? "That's not my job. I don't do price," Mr.
Gilder says.
In any case, he says while some of his newsletter's marketing pitches
emphasize making money, his primary interest is technology, not stock
performance. He says he owns about seven of the companies on his list,
and he doesn't sell. (He has an independent manager of his money.)
To be sure, Mr. Gilder has recommended duds. He said he pulled
Netscape off his list before the Internet-browser company got its buyout
offer from America Online. "That was a real clinker." In the case of P-com,
which made radios for transferring data into offices, the stock had dropped
more than 50% since his November 1997 recommendation before he
removed it a couple of months back.
Moreover, the timing of when he picked some of his winning stocks can be
fuzzy. For instance, his newsletter cites Sept. 24, 1996, as the "reference
date" for Qualcomm. But he mentioned the company only briefly in July,
and his first lengthy discussion didn't occur until January 1997.
Mr. Gilder says he can't recall why that September date was picked for
Qualcomm; he refers the question to a colleague, who says the newsletter
will change the reference date to July.
Clearly, Mr. Gilder was a fan of Qualcomm long before it erupted. His
winning picks have crushed his losers. Besides Qualcomm, five other
top-performing S&P 500 stocks he favored were Sprint PCS Group (up
343%), LSI Logic (up 319%), Nortel Networks (up 304%), Sun
Microsystems (up 262%) and National Semiconductor (217%). All were
on his list throughout 1999, and most were on it a year or two before that.
Mr. Gilder also was "early on JDS Uniphase, talking about their optical
components well before anybody else was," says Mr. Gustafson, the Stein
Roe growth-fund manager. Last year, JDS Uniphase, which isn't in the
S&P 500, was up 830%.
Richard Weiss, who manages $7 billion in assets at Strong Funds, says he
doesn't follow Mr. Gilder's picks slavishly but says he is right a lot. Still,
with the recent sharp decline in tech stocks, Mr. Weiss wonders if "he's
had his market." |
