Nice graph in this WSJ article of PA's MCOM profits: "Heard on the Street Paul Allen's Stock Picks Aren't Always Lucrative
By ROBERT MCGOUGH and SUZANNE MCGEE
Staff Reporters of THE WALL STREET JOURNAL
Investors hoping to find the next Microsoft by tagging along with Paul
Allen's stock picks lately have found their investments becoming merely
micro.
Mr. Allen, of course, is the billionaire co-founder of Microsoft. Years ago,
he left the software giant and began making his own investments,
principally through his investment arm, Vulcan Ventures. He made a splash
yesterday with a $100 million investment in Oxygen Media, an online and
cable media network.
The stock of Oxygen isn't publicly traded. But when Mr. Allen buys the
stock of a public company, executives there usually hail it as a stamp of
legitimacy. Moreover, stock prices of such companies have been known to
bump upward on big volume at the time an Allen investment announcement
is made.
"Clearly, there has been a Paul Allen factor at
work in the market in the past," says Erik
Gustafson, manager of the $1.1 billion Liberty
Growth Stock Fund. "That makes investors pay
attention and some of them put in buy orders."
How well have investors fared if they try riding on
Mr. Allen's coattails? Let's put it this way: They
won't become billionaires any time soon.
Indeed, an investor who put an equal amount of
money into each of nine public investments at
about the same time as Mr. Allen did would have
lost money. The average return for seven of his recent deals between July
1998 and August 2000 -- excluding his stake in America Online, which he
sold in 1994 for a profit of $100 million -- was a loss of 43%. (Including
AOL and another older investment whittles the loss to 11.9%.)
Don't look at these stocks to approximate the return on Mr. Allen's broad
portfolio. This list includes only stocks where Mr. Allen disclosed a new
investment in a public stock, so others could then piggyback onto the
investment. In some instances, Mr. Allen already had preinitial public
offering investments in these companies. He makes most of his investments
at the venture-capital stage, when start-up companies are hungry for seed
capital. Those numerous private deals, done long before the companies go
public, don't show up on this list and ultimately could provide Mr. Allen
with rich gains.
The table doesn't indicate how much Mr. Allen himself made or lost on
these stocks, an Allen spokesman notes. In some instances, Mr. Allen
already had investments in these stocks at lower prices. Moreover, Mr.
Allen often received deals that your average investor -- or even your
average mutual-fund manager -- wouldn't be able to get, including some
that provided him protection from losses.
This list of investments doesn't reflect "his larger investment strategy or his
larger success rate," the spokesman says.
The spokesman suggests that Microsoft, another of Mr. Allen's
investments and the source of his wealth, should be included. But Mr.
Allen has been an investor in Microsoft since before its IPO in 1986,
something individual investors aren't likely to have had a shot at. In recent
years, he has been a net seller of Microsoft stock, which wouldn't seem to
be a buy signal for investors seeking to trade along with him.
As recently as 1999, Forbes magazine described Mr. Allen as being
second only to his Microsoft co-founder Bill Gates as the world's richest
man. The multibillionaire left Microsoft in 1983 and founded Vulcan in
1990 after surviving a battle with Hodgkin's disease. The goal of Vulcan
was to invest some of his Microsoft wealth in still-newer technologies,
which in recent years largely have come to mean
broadband-communications technologies.
Despite his recent spending spree, Mr. Allen remains secretive. He is
hardly reclusive -- his parties have included a masked ball in Venice, he
will go on the road to support companies in which he invests and his
investment conferences are industry highlights -- but he rarely discusses his
game plan or even his holdings with the media.
The accompanying table conservatively assumes that investors were able
to buy the stocks at the next closing price after Mr. Allen's investment was
disclosed. For instance, shares of RCN, a telecommunications concern,
rose to $45.72 on Oct. 4, 1999, on news of an Allen investment, from
$38.06 the day before. The trading volume soared to 9.47 million shares
from 1.85 million the previous day, even though Mr. Allen was buying not
the common stock, but a 7% convertible preferred stock. Likewise, in
February this year, the stock price of National Discount Brokers popped
up almost $4 to $27.69, and trading volume more than tripled from the
prior trading day to 782.6 million shares, on news of his investment.
Mr. Allen's investment in National Discount Brokers worked out well, as
the company was bought by Deutsche Bank AG at a price of $49 a share.
Investors who piggybacked on that trade would have made 77%.
But the common stock of RCN has plunged to $11.63, a decline of nearly
75% since the close after Mr. Allen's investment was announced. Other
stocks that have plunged include TheStreet.com and FatBrain.com, which
was bought by BarnesandNoble.com last month.
Mr. Allen has been criticized for selling one of his best investments far too
early. In 1994, he began to unload his America Online shares, dumping
more than half his large stake in the company. He originally began buying in
March 1992.
Mr. Allen failed to get a board seat he desired, and officials at America
Online strongly objected to Mr. Allen's investment. They worried that a
perceived link between AOL and Microsoft would upset other technology
firms that were AOL partners.
An investor who bought in March 1992 and sold when Mr. Allen began
selling would have made an estimated 265% -- but forfeited huge gains
thereafter. And it isn't clear when Mr. Allen's investment in AOL actually
was made public, meaning investors may not have known to get in when he
did.
If anything, Mr. Allen carries a bigger reputation in venture-capital circles
than he does in the public realm, because that is the arena where he has
made most of his investments. Even there, although he is still seen as having
an insider's knowledge of the media and telecommunications businesses,
Mr. Allen's luster has faded in the eyes of the cognoscenti, according to
investors and analysts.
In this difficult market, some of Mr. Allen's companies haven't even made it
out of the IPO backlog. Online retailer Mercata, whose chief executive
made a guest appearance on Oprah Winfrey's talk show last year (Ms.
Winfrey is a key participant in Oxygen), has been waiting to go public
since March.
Even with Mr. Allen's magic fading a bit, he still has cash -- unlike some of
the fledgling companies he has funded.
"What's less important than Paul Allen as a celebrity investor is that he's an
investor who is willing to put more money into companies he's already
funded, showing his faith in them," says Alan Lowenstein, co-portfolio
manager at $2.5 billion John Hancock Technology Fund.
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