Gilder and disclosure
Zebraspot writes:
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Gilder often points out that he does not, under any circumstances, trade among his "recommended" stocks - he initiated this practice a couple of years ago
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From BusinessWeek Online
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COMMENTARY
BY DAVID SHOOK MAY 24, 2000
What Disclosure Could Do for George Gilder
If he revealed his portfolio and set a firm insider investing policy, the tech guru would further enhance his credibility
How does the technology prophet, George Gilder, turn a profit in the market himself? His 60,000 newsletter subscribers might just be curious. And in this day of roller-coaster market swings, proliferating financial journalism on the Web, and potential conflicts among those who dispense investment advice, Gilder could gain even more credibility by making a strong statement about his company's internal stock trading policy.
In fact, Gilder, an independent technology futurist and author who earned fame predicting the success of Qualcomm and JDS Uniphase, among other companies, soon will post an expanded disclosure statement and code of ethics on his Web site, Gildertech. The site is the launching pad for the Gilder Technology Report. The monthly newsletter has become a force in moving stocks and, in turn, a tool for traders looking to profit off instant runups and sell-offs in the stocks Gilder mentions.
"DEGENERATE FAD." Don't expect a credo that reveals his portfolio or places strict limits on personal investing inside his publishing enterprise, however. Gilder's publisher grudgingly admits that formal rules are necessary, but only to a point. "We're reexamining the rules because all of a sudden it matters," said Richard Vigilante, referring to the rancor recently over Web journalists singing the praises of stocks they own. "We're not disclosure-compulsive. Obeying the rules is more important than constantly saying we're obeying the rules," Vigilante said.
"On a personal note," he added, "I just think the disclosure thing is a slightly degenerate fad because it presumes that we're surrounded by crooks. We put an enormous amount of effort writing quite difficult and enormously responsible articles. I want to live in a society of gentlemen -- I don't want to live in society where people are presumed to be guilty."
But there are legitimate reasons why Vigilante may want to rethink that position, and why Gilder should craft an insider investing policy with some teeth to it. His newsletter aims to offer long-term advice about companies that possess what he calls ascendant technologies. Gilder favors companies that may be solving the bandwidth bottleneck -- the difficulty in sending huge volumes of information to computers and cell phones.
GILDER EFFECT. Lately, however, stocks such as Avanex, a maker of photonic processors that pack data into fiber-optic lines, and Xcelera, which owns the promising Mirror Image Internet caching system, have fallen victim to a phenomenon known as the Gilder Effect. Both companies' stocks were targets of mad profit scrambling after Gilder recommended them.
The Gilder Effect may be undermining the newsletter's mission: To help subscribers "grow rich on the coming technology revolution" by "identifying tomorrow's biggest technology winners in their infancy, when their shares are cheap," the Web site says. Current market price doesn't factor into Gilder's equation. Nor does market reaction to the stocks he picks, Vigilante says. But this phenomenon cannot be ignored, especially considering the potential for associates close to Gilder to buy the stocks he lauds before subscribers hear about them.
Then there's the Merrill Lynch connection. Gilder positions himself as removed from short-term investing and stocks themselves -- concentrating instead on the technologies behind companies. But Gilder's recent affiliation with Merrill Lynch -- he regularly offers the firm his wisdom on market trends -- gives Gilder good reason to abide by the same disclosure rules that Merrill Lynch must follow. Steve Milunovich, head of the firm's telecom research department, handpicked Gilder for a seat on something called the Merrill Lynch "TechBrains Advisory Board." Says Milunovich: "George is a sounding board we use to help guide our analysts."
BIG FAN. A firm insider policy by Gilder also could squash questions about possible conflicts before they surface. Gilder also writes for Forbes and The Wall Street Journal, and he has been questioned by readers in that publication about the stocks he recommends and also may own. That's one of several rows recently over the state of financial-journalism standards. Microsoft Network's MoneyCentral columnist Jon Markman has been faulted for recommending in his columns stocks that he owns. And TheStreet.com's founder, James Cramer, recommended his company's stock on the Fox News Network, where Cramer was a regular commentator. Fox criticized Cramer. He quit appearing on the show. Now Fox is suing Cramer for breaking their deal. These events and others have culminated in Gilder's decision to revamp his newsletter policy on who can trade which stocks when.
To be sure, nobody believes Gilder is illegally profiting behind the scenes. He's well respected, both on Wall Street and in Silicon Valley, anointed by many as the preeminent voice on the future of technology. Microsoft's Nathan Myhrvold and MIT Media Lab's Nicholas Negroponte both have endorsed him. Merrill Lynch's Milunovich says he has been a big fan since the 1989 publication of Microcosm, in which Gilder examined the implications of the semiconductor revolution.
Gilder has worn many hats besides author. He was a speechwriter and adviser to Ronald Reagan. Gilder was one of many architects of Reagan's supply-side economic ideology. In this week's New Yorker magazine, for example, Gilder is the subject of a nine-page personal profile, mostly dealing with his conservative views on race, religion, and feminism. Now, Gilder has transformed himself once again -- this time into a newsletter journalist with a far-reaching reputation and ties to Wall Street. In the tech world, Gilder already has credibility, but he could build on the trust of his financial readers by disclosing his personal holdings and by laying down firm rules for those who read his predictions before the rest of us.
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