Interesting article. I'll post the rest tomorrow.
The Bears' Club, Part 1
By Nick Paumgarten
Special to TheStreet.com
12/22/99 7:17 PM ET
Editor's Note: Nick Paumgarten is a senior editor at The New York Observer,
where this article first appeared.
Three eloquent bears gathered for breakfast on December 15 in an executive
dining room atop the Morgan Stanley Dean Witter building in Times Square.
The three bears were Barton Biggs, Morgan Stanley's chief global strategist;
James Grant, editor of Grant's Interest Rate Observer; and Alan Abelson, the
editor of Barron's.
The Observer had invited them there to discuss the art of being wrong. As
perhaps the most visible, articulate and persistent pessimists during the long
bull market of the '90s, they have refined the act of simultaneously holding fast
and eating crow.
It was 8 a.m. Morgan Stanley was serving breakfast. Hours before, the transit
workers strike had been averted, and Grant had closed the latest edition of his
biweekly newsletter. He was so bushed, he ordered iced tea for breakfast. As
the host, Biggs sat at the head of the table with Grant on his right and Abelson
on his left.
Soon they were joined by a fourth, Henry Blodget, Internet analyst at Merrill
Lynch. As the guy who triumphantly predicted the huge spike in the stock price
of Amazon.com (AMZN:Nasdaq - news) a year ago, he has become the face of
the Internet stock boom. He is in many ways the embodiment of the weird new
science that has so flummoxed Messrs. Biggs, Grant and Abelson: that of
ascribing huge valuations to companies that don't make money. Essentially,
Blodget is an Internet bull. The Observer had invited him as a foil.
Abelson: Hello, Henry. Do you feel like a foil?
Grant: He just feels rich.
Blodget [sitting down]: I've been able to take advantage of my lucky advice.
Grant: There's a piece of news.
Biggs: Are we going to talk about the stock market or the Internet or what?
Abelson: Do you know anything about the stock market, Jim?
Grant: No. This reminds me of a fellow who was a compulsive gambler. He was
so compulsive and so unlucky that his bookie began to take pity on him. He
was betting on basketball games. He bet on the NCAA and lost every single
round of the tournament. Finally he was down to his last five bucks, and he lost
that. The guy went to his bookie and said, "I can't pay you." The bookie said,
"Well, basketball doesn't seem to be working. Why don't you take a shot on
hockey?" And the guy said, "Hockey? What do I know about hockey?"
So, the Stock Market
The Observer: Does it matter whether one is right or wrong?
Abelson: It's better to be right. There's no question. But we all can in one way
or another justify our existence, because somebody has to be wrong, or else
how would you know who's right? One of these years we're going to be right.
Basically, our function is to piss in the wind. Somebody should be standing
here pointing out that maybe things are getting out of hand, maybe things are
not as rosy as they seem. But I certainly would rather have been right. In other
words, I wish the Dow was at 500.
Grant: Somebody once asked me, "If you had to do it over again, would you
have been bullish?" And the only thing I could say was, Yes!
[Laughter.]
Biggs: I'm a little different from them. Like a lot of people my age, I'm bearish
and cautious, but I'm running a money management firm. The trick really is to
survive through this period where we have been too cautious on the markets, but
to remain flexible enough so you don't take such extreme positions with real
money that you get wiped out.
Abelson: There's a difference between emphasizing risk and forecasting the
market. I mean, I think both Jim and I have written continually about bullish
things. It tends to get lost, but we do. It isn't as if we think people should head
off for the South Seas and forget about investing.
Grant: It's not as if people with a skeptical cast of mind can't get through the
day. It's not about being bearish as much as it is about being contrary, about
having a sort of creative dyslexia about the world and about not accepting it, you
know, when J.P. Morgan comes out and says, "Buy Amazon," you say, "Huh?
Is that right?"
Blodget: The question I'd ask is, over the past few years, in retrospect, is there
something you missed in the analysis that now makes you feel like you made
the wrong call? Not necessarily because of what the market has done.
Abelson: It's the wrong call, though, Henry, because of what the market has
done.
Blodget: But you have to go back to the decision point. I have in mind
something that Bob Rubin said when he was Treasury secretary: "Just
because the outcome is different from what you predict doesn't mean that the
decision was wrong, based on the information you had at the time."
Biggs: I made the wrong call, but a lot of the bears in general, the people who
are cautious, the wrong call they've made is about the Internet and the
dimensions and the speed of the Internet. Basically, these people have been
right about the 80% of the market that is the old-economy stocks, which have
been going down for a year and a half now. But I think we way underestimated
the impact of the Internet.
Abelson: I think what we all underestimated was how valuable losses are. We
didn't realize that losing money was a way to get rich. |
