Great story in July Wired magazine picked up this excerpt on another thread...
technologyinvestor.com
I direct you to the latest (July) issue of Wired Magazine. There you will find a positively
engrossing article on George Gilder, the man who was the most influential technology
stockpicker of the late 1990s. The story is of rags to riches to rags. The story is of the
analyst whose main stock picks are down by over 90% and whose favorite, Global
Crossing, is now bankrupt. As Wired points out, "Even in a portfolio of flops, the scope and
depth of this particular debacle stands out." You can't get the story electronically. You need
to pick up the magazine on the newsstand.
Here are some excerpts. For the full impact, you must read the entire article. I've known
George for years. He's a genuine human being. He has great intellect, but little common
sense and even fewer business skills. From Wired magazine, written by John Midgley:
?I knew that it was going to crash, I really did,? Gilder says, looking out a window on to Main
Street (Great Barrington, Mass). Since 1996, he has published the Gilder Technology
Report, a monthly newsletter that in its heyday was arguably the most influential tout sheet
on Wall Street. He glances my way and notices my arched eyebrows. I had plowed through
several years? worth of issues, and while I read page after page of praise for a lengthy list of
seemingly promising telecommunications companies, I saw nary a hint of warning in
anticipation of the NASDAQ?s March 2000 tumble and the financial tumult that followed. He adds
quickly, ?I told people in early 2000 they should sell half their shares in these companies.?
Then he says, in a tone of self-rebuke: ?I didn?t say it often. I didn?t put in it a
newsletter...?
Just a few years ago, he was the toast of Wall Street and commanded as much as $100,000
per speech. Now, he confesses, he?s broke and has a lien against his home.
Gilder first spied the revolutionary potential of fiber optics at the start of the 1980s when he
shared a conference podium with Will Hicks, one of the field's luminaries....The predictions
Gilder has made in the intervening decade suggest that he vowed to never again permit anyone
else to convey a vision of the world more exuberant than his own.
In 1996 he foresaw that, because of broadband?s potential to deliver online learning, within five
years ?the most deprived ghetto child in the most benighted project will gain educational
opportunities exceeding those of today?s suburban preppy.?
It was a preposterous assertion and hardly the only one that seems absurd in the harsh
fluorescent light of the morning. He also claimed that the Web would soon bring on the quick
death of both the US Postal Service and television...
He knows he shouldn?t utter the next line, but the congenitally candid Gilder seems incapable of
biting his tongue. ?My subscribers hate when I say things like this, but I think we?ll look back
on the current period as a fairly trivial event.?
Each month, he thought about providing a warning to his subscribers, and he decided against it
every time. He had witnessed first hand what others had dubbed the ?Gilder effect?: the
steep spike in a stock after he added that company to his list. It wasn?t unheard of for the
price of a stock to jump up by more than 50 percent within an hour of a newsletter?s release.
?If I had said, ?Hey, this is a top, you should all sell,? it would have been a cataclysmic event,?
he says. ?I?d think about telling people that they should sell half their holdings, and each time
I?d conclude that my subscribers would be enraged. I also wondered what I?d precipitate if I did
it.? Fully 50 percent of his readers had signed up for the report at what Gilder now calls the
?hysterical peak? of the market. ?Half of my subscribers would have been eternally
grateful (for a warning), but the other half ? the new ones ? would?ve been enraged because
they had just come in,? he says.
In the end his did nothing. And soon enough he had an entirely new set of distractions to fret
over. "In the past, we'd sell out our investor conferences within two weeks." But in 2001, we
sent out the same literature and five or seven people signed up. He lost the deposits that were
placed to reserve hotel space for the gatherings. Newsletter renewal rates plummeted. A huge
tax bill came due. By spring 2002, he's laid off nearly half his staff.
"You can be just fabulously flush one moment and then the next, you can't make the last
million dollar payment to your partners (he was buying them out) and there's suddenly a lien
on your house," he says. Gilder, who had always cast the entrepreneur in the most flattering
of light, had been granted a far more intimate, less appealing glimpse of life inside a startup.
One of Gilder?s bedrock beliefs is that we have left behind the era of the microcosm ? a time
marked by an abundance of transistors and a scarcity of bandwidth ? and entered the era of the
telecosm, in which bandwidth is abundant and transistors scarce, given a migration to
ever-smaller devices. ?That argument is generally true,? says Google?s Schmidt. ?The error
George made is to assume that the economics of surplus are positive for investors, when in
fact surplus means cutthroat price competition, over-provisioning, and all the things we?re
seeing happen in the telecom sector.? |
