December 31, 2000
MARKET WATCH
A Year Underachievers Everywhere Can Be Proud Of
By GRETCHEN MORGENSON
For most investors, living through the stock market's gyrations in 2000 was rather like enduring a months-long detention at the school of hard knocks. At various times, investors found themselves standing at the blackboard writing over and again: I will not buy stocks with no earnings. I will not buy stocks with no business plan. I will not buy stocks with borrowed money. I will not read Wall Street research.
Perhaps the biggest lesson for alert investors in 2000 was that the new economy looks a lot like the old economy, except its companies generate bigger losses.
And so it is time to send 2000 off into history with the Augustus Melmotte Memorial Prizes, bestowed annually on the businessmen and women who made the year so remarkable. The awards are named for the mysterious but persuasive stock promoter central to "The Way We Live Now," by Anthony Trollope. In the book, which takes place in the late 1800's, Melmotte's schemes propelled him to the highest levels of London society. But when it was discovered that he had been peddling shares in a nonexistent railroad company, he vanished.
After the turmoil in the markets this year, many investors may find this to be a very familiar tale.
In a year of many serious contenders, here are the Melmotte winners:
THE FAME IS FLEETING AWARD
To Jeff Bezos, chairman of Amazon.com, for one of the fastest falls from grace in recent history. A year ago he was Time's man of the year; now he is facing irate shareholders whose stock has fallen 83 percent.
THE HOGWASH CAN SMELL SWEET AWARD
To Wall Street's Mr. Right, Ravi Suria, the convertible bond analyst at Lehman Brothers who halfway through the year, when Amazon's stock was still flying high at $42, had the temerity to question the company's prospects for profitability. While an Amazon spokesman called Mr. Suria's report "hogwash," investors who took his advice and avoided Amazon's securities saved themselves a lot of lost cabbage.
THE MUTUAL ADMIRATION SOCIETY AWARD
To Sanford I. Weil, chairman of the financial powerhouse Citigroup, and C. Michael Armstrong, chairman of the beleaguered AT&T, who prove that it always pays to have pals in high places. Mr. Armstrong sits on Citigroup's board, and Mr. Weil is a director of AT&T. So perhaps it was not all that surprising that Jack Grubman, the powerful telecommunications analyst at Salomon Smith Barney, a Citigroup subsidiary, turned positive on AT&T shares in November 1999. Or that five months later, Salomon was one of three Wall Street firms selected to help underwrite the telephone company's $10.6 billion wireless stock issue.
THE TIMING IS EVERYTHING AWARD
To Heidi Miller, the former chief financial officer of Citigroup, who left the old economy for the same job at Priceline.com. Unfortunately, her timing was off. Ms. Miller joined Priceline just before its fortunes — and share price — plummeted, leaving her barrels of stock options worthless. But don't cry for Ms. Miller. Priceline forgave a $3.3 million loan it had made to her, a move that, for its generosity of spirit, must have made Priceline shareholders feel all warm and fuzzy inside. Who cared that Priceline's generosity meant that it had to record a charge in the amount of the loan against its operations?
THE NOW YOU TELL ME AWARD
To Sara Farley, an analyst at PaineWebber, who on Sept. 28, after shares of Priceline had dropped from $104.25, to $10.75, put out a report maintaining her "buy" recommendation. But there was that additional little detail of her price target on the stock, which she lowered from $125, to $15. And no, a stock split was not involved.
THE THANKS, BUT NO THANKS AWARD
To the board of the Internet Capital Group, the formerly overvalued Internet incubator concern. On Nov. 24, the day after Thanksgiving, the board adopted a plan that it said would encourage potential acquirers to negotiate with it before trying a tender offer for the company. Shareholders may not have been too grateful for this, though, since at the time the stock had lost 96 percent of its value for the year. They might have welcomed any takeover as long as it was at a premium to the share price.
THE TIME TO SHARPEN YOUR TOOLS AWARD
To Henry Blodget, star Internet analyst at Merrill Lynch, who penned a report on Jan. 10 to defend the shares of Internet Capital, which had been labeled overvalued in an article in Barron's. "No news here," Mr. Blodget trilled in his report. Moreover, he said, "Valuation is often not a helpful tool in determining when to sell hypergrowth stocks." As it turned out, valuation was indeed the most helpful tool investors could have used. The stock was trading at $173.88 when Mr. Blodget wrote his report, a price the shares never saw again all year. Internet Capital now trades at $3.15 a share.
THE PATIENCE IS A VIRTUE AWARD
To Julian Robertson, hedge-fund manager and renowned value investor. He shut his investment firm in April, telling his investors that he could no longer make sense out of the manic market. After two decades of generating superlative returns, buying undervalued stocks and shorting expensive ones, Mr. Robertson began losing money in 1998 and continued through early 2000. Still, his timing was impeccable. His capitulation came just 14 trading days after the Nasdaq hit its peak of 5,048.62, proving that sometimes you have to be wrong to be right.
THE COMIC RELIEF AWARD
To lawyers at Websense, for having the humor to write the following disclaimer in the Internet company's initial public offering prospectus last April: "We have a history of losses and, because we expect our operating expenses to increase in the future, we may never become profitable." Alas, as everyone knows, love is blind. The stock, issued at $18 a share, closed its first day of trading at $47.75. (With thanks to James B. Stack of The InvesTech Research.) It closed on Friday at $14.50.
THE OUT OF THE MOUTHS OF BABES AWARD
To Jonathan Lebed, the New Jersey teenager who attended high school by day and, according to securities regulators, manipulated stocks by night on his computer. When he was apprehended for his scheme of promoting obscure stocks on the Internet that he had recently bought for himself, then selling the shares at higher prices to those who inexplicably acted on his anonymous tips, his response was, "Everybody does it." In a world where analysts put outlandish price targets on stocks and money managers regularly promote the stocks they hold on CNBC, truer words were never spoken.
Copyright 2000 The New York Times Company |
