Heard On The Street: Technically, Gilder's Words Carry Weight
Dow Jones Online News, Jan 7, 2000 01:05 hrs
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 index were favored by Mr. Gilder, a 60-yearold 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 was also "early on JDS Uniphase, talking about their optical components well before anybody else was," says Mr. Gustafson, the Stein Roe growthfund 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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