To all - text of WSJ piece on George Gilder.
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."
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