Anyone see this article? Note what I've put in bold.
Wonder how they missed the Iomega thread?
4/1/98 SmartMoney 104
1998 WL 2064404
SmartMoney
(c) 1998 SmartMoney. All rights reserved.
Wednesday, April 1, 1998
Vol. VII, No. IV
Hopelessly Devoted: When technology stocks got soaked last fall, no community
suffered more than the Nasdaq devotees who inhabit the Silicon Investor Web
site; So why, with many of their gains washed away, are tech's true believers
still swaggering?
By Christopher Oster
For New Jersey technology executive Joe Antol, it took just one frightening afternoon
this past October to lose as much as $80,000 in the market.
Uriel Yepes, a 32-year-old Miami accountant, lost $6,400 in Oracle stock in just a
few hours.
Then there is Rick Flayler, who not only watched a portfolio that was up 400 percent
dwindle away to nearly the break-even point last fall, but blew an additional $120,000
buying options on three more tech stocks.
So is he complaining? Not "Digital Man."
That, at least, is how the 36-year-old Flayler is known by his fellow tech groupies (like
Antol and Yepes) who inhabit the intense, opinionated and often cultlike world of
Silicon Investor, the two-and-a-half-year-old Internet site where 60,000 investors
actually pay money -- currently $200 for a lifetime membership -- just to talk tech with
one another. With weekly page views numbering 22 million and 75,000 new posts a
week, SI is the most heavily trafficked financial site there is, exceeding by far the
30,000 weekly postings on the popular Motley Fool message boards, which cover
more types of stock than just technology.
Since he registered that six-digit loss, Flayler figures he's visited with his fellow Silicon
Investor obsessives at least five nights a week, mostly to chat about Compaq, one of
the few tech stocks he still holds. And while Flayler was lightening his portfolio in
February out of concern over a possible U.S.
war with Iraq, he has no doubts he'll be back in tech stocks soon enough. Says
Flayler, who notes he was playing only with money already made in the market and not
with his son's college fund, "I know I'll get it all back."
Flayler is not alone in his confidence in technology stocks, and that faith is never
stronger than when he logs on to Silicon Investor. For there he is among the true
believers, the people who -- no matter what disaster befalls them -- are convinced that
tech stocks are the Holy Grail of the investing world. Take the 51-year-old Antol, for
instance, whose Oracle loss late last year didn't stop him from plowing another
$20,000 into the stock just after it plummeted in price. But didn't that experience
chasten him a bit, make him at least consider shifting out of tech and into blue chips?
Not on your life. "Do I want to buy Gillette or Coke?" he says of two stocks that have
each returned more than 1,000 percent over the past 10 years. Such slow, steady
growth is hardly enough for Antol. "I might as well put my money in the bank," he says
dismissively.
At Silicon Investor, there's little talk of asset allocation, the Dow Jones Industrials or,
quite frankly, the possibility of tech stocks falling without bouncing right back. As many
investors unfamiliar with this cyberspace booster club wonder whether they should
tiptoe back into that tech-sector fund they
were putting $500 a month into through a payroll deduction program, Silicon Investor
devotees are betting tens of thousands of dollars at a time on one unwavering creed:
that technology has entered a new era, where the rapid gains of the past several years
really can be the norm going forward, where technology stocks can defy their
deep-rooted cyclical history, and where every dip is simply another buying
opportunity.
Some investment professionals shrug in amazement at the virtually unbridled optimism
on technology stocks expressed on the SI site, wondering if the tendency to proselytize
has killed the urge to analyze companies in the sector. Notes veteran Cowen & Co.
analyst Drew Peck (the object of much scorn on the site for his occasionally bearish
semiconductor pronouncements): "They tend to be much more enthusiastic investors,
which is dangerous. A strong dose of cynicism helps to avoid getting buried." Still, a
look at members of the Silicon Investor Web site and how they've come through the
tech correction shows the kind of deep-pocket support the tech market has gotten in
the past few months. Despite the threat to many tech companies' markets from the
Asian crisis, despite widespread concerns over what lower and lower PC prices will
do to profits, and despite the fact that tech has yet to have a bear period of longer than
six months in the '90s, the faithful remain unshaken -- an attitude that has fueled an 18
percent rise in the tech-heavy Nasdaq market since it hit
its recent bottom on Jan. 12.
It's not as though the Asian contagion hasn't taken its toll. These days even a few SI
veterans express reservations about aspects of the tech market. But unlike Flayler,
who's moving temporarily toward cash, concerns at SI generally mean shifting from
smaller tech companies into bigger ones such as Intel or Dell -- certainly not
abandoning the sector altogether.
Are such devotees over the top or onto something? Peck of Cowen & Co. notes that
"a fundamental analyst would say there's a great deal of risk" at this time, particularly to
portfolios that are all or substantially invested in tech. But Antol takes a somewhat
more physiological view. He points to a co- worker who "keeps buying [tech stocks]
at $106 and selling at $90. I say to him, 'Get out of equities. You don't have the
stomach for it."'
And that's lesson No. 1: If you don't have the stomach for it, then don't get into tech.
To: Dakota Sullivan
Cisco dropped by 50 percent in 1994. Dell once dropped 50 percent. Didn't
CPQ [Compaq] have some troubles in its early days? (I'm not old enough to
remember.) They have made incredible moves since their stumbles and so can CIEN
[Ciena]. CIEN hasn't even really stumbled! Maybe instead of their profits growing a
couple of hundred percent, they slow down to 40-50 percent for 1998. At a price of
42 I would be happy with 40 -50 percent growth.
-- Craig Crawford, Feb. 20, 1998, as Ciena was on its way to a one-day loss of 27.7
percent.
Silicon Investor co-founder Jeff Dryer knows what it's like to lose money in technology
stocks. "The first time was 1987, when the market crashed," he says. "I lost $15,000
in about a week." But Dryer, a University of Missouri M.B.A., was just 19 at the time,
so it wasn't all that bad.
Now, he says, he's met community members (yes, they do call the Web site a
community) who have lost as much as $500,000 in the recent tech correction. "What's
tough on a lot of the participants is that they might have a wife and kids," says Dryer,
30. "It's tough to deal with the volatility and have a family, too."
Dryer and his SI co-founder, 28-year-old brother Brad, have felt the
volatility in their site's membership-fee revenue, which peaked last October at $86,000
and then fell to $46,000 a month by December, when the bad news from Asia began
to bubble over into Silicon Valley. (At the start of the year, say the Dryers,
membership revenue bounced back, along with the market.) Brad, the ace
programmer behind the site, and Jeff recently paid off the last $40,000 of the
$200,000 they borrowed from their parents to get SI up and running. That loan and
the $100,000 of their own money they've poured in is all the risk they can handle right
now -- which may be why they themselves have bailed out of the tech market.
The site is beginning to turn a profit, Jeff adds, although the to-do board in their office
still carries the reminder: "Pay Brad/Jeff salaries." And if they're not quite out of the
woods yet, they are out of the Valley: Partly as a cost-saving move, the brothers have
relocated their shoestring operation from San Jose, Calif. -- the center of Tech Alley,
where they once shared a building with Internet giant Yahoo! -- to the Kansas City,
Kan., suburb of Overland Park, where the two-man staff (the Dryers' only other
employee, "Webmistress" Jill McKinney, is still in San Francisco) works a mere 30
miles from Mom and Dad's house.
Though far away from the epicenter, SI has clearly ridden the tech boom well.
Begun in 1995, it took two weeks to sign up the first 100 members (when the site was
free). By January of last year, however, SI was registering 700 new users a day -- a
pace that barely slowed when the Dryers began charging a lifetime membership fee in
April 1997 (first $45, then $75, now $200).
Unlike rival sites like the Motley Fool, the Dryers don't actually post their own advice,
although they have been privately urging caution. Jeff Dryer recalls a lunch he had last
fall with a site member who said he was investing heavily with borrowed money. "We
could be going into a bear market that could last a year," Jeff told him at the time --
advice the member didn't heed.
Still, the Dryers insist that their site isn't full of naive boosters and blowhards, but is a
place where people who understand technology and people who know investing can
work together to make smart decisions without having to wait for Wall Street to weigh
in. "We founded the site as a way to take advantage of our love of tech stocks and the
opportunities on the Web," Jeff Dryer says. "Now, when we meet with members,
we're always so stunned with how they identify with this movement. They're like the
hippies of the '90s. Instead of doing drugs they're sending e-mail. They talk about the
addictive qualities of the site."
Dear Vin,
What is it going to take to convince some of the ignorant oafs on Wall Street [that]
Intel is not even trying to compete with Neomagic?
-- Gregor, Feb. 14, 1998
Gottfried Mauersberger was up 50 percent for the year heading into last fall, only to
watch most of it disappear, including a four-day hit of 27 percent on his Quantum
holding and a 26 percent loss in Applied Materials. Like many SI devotees, he headed
for the site to vent. The "idiots have our money," he wrote of SI's favorite target, Wall
Street. "Superior intelligence has nothing to do with success in the market."
Mauersberger, 63, who himself has a master's degree in electrical engineering from the
University of California at Berkeley, can be excused for a bit of hubris because he also
shares yet another common trait of the Silicon Investor faithful: He spent 26 years as a
disk-drive engineer at IBM, so he really does know the tech industry better than most.
Indeed, like no small number of SI habitues, Mauersberger sees himself as
practicing the ultimate in the "invest in what you know" school of stock picking
preached by legendary fund manager Peter Lynch. Likewise, Rick Flayler no doubt
understands all the clipped techie jargon on the site because he's a former engineer for
computer networking giant 3Com. Site member Nick Zaharias spent two years with
Netscape Communications before losing his job in January. Frequent poster Don
Dodge is a manager at Digital Equipment's labs.
But few can match -- or at least claim to match -- the tech resume of 49- year-old
Paul Engel. Engel, who retired four years ago from his job as a process-development
engineer at Intel and now spends an hour or more a day posting his latest
semiconductor insights to the SI faithful, doesn't tire of reminding members of his
hands-on credentials: "I've made integrated circuits," he boasts -- something few Wall
Street analysts can say for themselves.
And herein lies SI's beef with the Street: While analysts and portfolio managers are
looking at the numbers, SI members know the products and thus tend to tune the Wall
Street types out . . . or demonize them. Once in a while, especially during deep price
swoons, an X-Files atmosphere creeps into the tech discussion boards, and the
swagger of some investors dissolves into what may seem like paranoia.
On Dec. 12, for example, the fourth day of a market slide that saw the Nasdaq
composite plunge more than 7 percent, Sankar Acharya, a professor at the University
of Illinois-Chicago, clearly was ticked off. But his fury wasn't directed at the ephemeral
markets themselves -- or even at the falling companies. It was aimed at a mysterious
group of Wall Street conspirators:
WS [Wall Street] is filled with a bunch of IDIOTS. Here is why. SEG [Seagate
Technology] announced much lower earnings last quarter . . . QNTM's [Quantum's]
business is very strong with virtually no competition. Yet QNTM is trading lower than
SEG!! This is happening because some nervous sellers offered at market, when there
were few buyers, and so the MMs [market makers] decided to lower the price
sufficiently to buy on their own. As the price became lower, more and more traders
panicked. . . . They are buying at bids that they set. MMs in the Nasdaq really stink
and this system stinks.
This isn't the posting of an irate market newcomer, mind you. Acharya teaches finance
courses with names like "Fixed-Income Securities in Today's Market." And then
there's the row over analyst Drew Peck. While a few Wall Streeters, notably Merrill
Lynch's influential Thomas Kurlak, are given some credit for their stock picks, Peck,
well . . . isn't one of them.
Mr. Pecker has been an Intel bear for a long time. However, when he appears on TV,
he says Intel is a buy for the long term. Have you noticed how these analysts are now
saying Intel is a buy for the long term, but don't buy now? In effect, they are
contradicting themselves.
-- "Stockman," Dec. 20, 1997
Peck thinks [of] himself as "cautious" on Intel, but the fact that early in 1997 he was
among the first to jump on the AMD [Advanced Micro Devices] bandwagon says he
is full of it.
-- Steve Kovlakas, Jan. 14, 1998
Peck acknowledges he's read all of this. "I frequently find myself being maligned on
Silicon Investor," he admits good-naturedly. But since he's a "lurker" -- someone who
reads the threads but hasn't anted up the $200 to become a posting member -- Peck
can't defend himself online.
Currently, the sharpest disagreements between Wall Street and SI seem to be over
chipmakers like Intel and Quantum, and PC stocks like Dell and Compaq. While Wall
Street worries about sub-$1,000 PCs and competition from South
Korea, it's full bull ahead on the Silicon Investor threads. And the stock market seems
to agree with the amateurs. It has rewarded Dell, sending its price up 8.4 percent on
Feb. 19, despite the fact that, according to Zacks Research, eight out of the last 10
Wall Street opinion changes were downgrades. From the Dell thread: "Hi, Asky.
Peacelover has provided a new name for commercial analysts -- the 'paper pimps.'
Dell will beat their estimates, as usual. -- Sig." Intel, despite the bearish stance of
analysts like Merrill Lynch's Kurlak, has climbed 33 percent since the start of the year.
Being bearish on tech has often meant being wrong in the past, and many SI faithful can
rattle off their phenomenal successes as a response. Flayler, for example, was able to
deal with the recent damage because he had already racked up huge returns in Nasdaq
issues Remedy Corp., ("I probably made 150 percent"), Premisys Communications
(100 percent) and Siebel Systems (80 percent). Despite the bumps and the bum
stocks along the way, in fact, the SI faithful point to one very bullish stat about the
technology sector: It's outperformed the Standard & Poor's 500-stock index by more
than 150 percentage points since November 1992.
But even devotees like Don Dodge at Digital Equipment concede that many of the
faithful let their love of the product cloud their judgment. For example:
"Technology people will love Netscape to the end. A lot of them will go down with the
ship. They lose perspective," says Dodge.
What most of the naysayers don't realize is that the PC/technology/Internet revolution
is only in its infancy (five to 10 years if the starting point is Windows for the PC). Most
of the adoption of critical technologies, such as the automobile, television, ATMs,
usually follows an "S" curve, where there is an initial period where you have the "risk
takers" trying new technologies, then followed by an exponential increase in users. . . .
Guess what? We've probably only started to begin the exponential period, and this
period will probably last another 10 to 20 years.
-- Joey Smith, Feb. 19, 1998
On Dec. 2, 25-year-old Craig Crawford rouses himself from his bed and does
something unusual for a Silicon Investor member: He takes potshots at a technology
stock. Though he's a tech stalwart with the battle ribbons to prove it, Crawford has a
passionate dislike for some of the biggest game in Silicon Valley. And at 3:30 p.m.
Pacific time, Crawford decides to go hunting. His victim: 3Com. In post after post
Crawford points out that the turmoil in Asia is going to catch up with the highflying
stock. The fact that 3Com's shares
have soared by more than a third, to $39.13 from $28.50, over the past two weeks
only means the coming fall will be that much harder, he contends, boasting that he's
shorted the stock at $35 a share and higher.
But the true 3Com believers don't appreciate Crawford's input. "I for one am getting
tired of you picking apart everyone's opinion and interjecting your own negative
bias/outlook," wrote a member using the name "Druggist." "This thread is for
information, news and questions. Why not just try to be a lurker from now on, because
I for one am getting VERY TIRED of reading anything from Craig." Flayler went so far
as to wager his 3Com-area posting privileges against those of Crawford: "3Com will
hit 45 before it hits 25 again. If I'm right, you disappear. . . . If I'm wrong, I'll
disappear."
Crawford is different from the pack in yet another way -- he doesn't work in the tech
business. In fact, he doesn't work, unless you count researching and trading stocks 12
hours a day out of his mom's basement. And he has done his homework on 3Com,
reading its latest quarterly reports, tapping into the company's conference calls and
scouring its filings with the Securities and Exchange Commission on the Web. From 5
a.m. to 4 p.m., he's been watching CNBC -- with two TVs going full blast throughout
the house so he won't miss an iota of news -- and from all that, Crawford is able to
swear that the firm's
rapid growth in Asia is unsustainable considering the region's recent trouble. Overseas
demand for the company's routers and modems will sink like a lead weight, he
predicts. As will the stock price.
And on this count Crawford is dead right. At 2:02 p.m. the very next day, Marcel
Frise posts a plea for information: "Dropping like a rock . . . 361/4. News?????????"
At 2:06, another Frise plea: "Selling has intensified . . . looking real ugly . . . bad news
looming?" At 4:24: "COMS just warned!!!"
When the market closes, 3Com forecasts a "slight profit" for its second quarter. Later,
Wall Street analysts forecast the earnings to be about 5 cents a share. Prior to the
company's announcement, those same analysts had figured on 44 cents a share.
Crawford, however, doesn't post again on SI until he surfaces with an
uncharacteristically short message. Including a link to another Web address, he jots
down: "This site shows a trade at 5:11 @ 31" -- a price that would give 3Com a
one-day loss of 19 percent. Crawford has his victory.
With bulls to bears running 20 to 1 on SI, it's not exactly the place for a calm
discussion of all points of view. In fact, bearish sentiment is often attacked with
vehemence, and not just by fellow members. Crawford, in fact, is
being sued by Osicom, a small networking outfit, for his relentless online attacks. ("It's
a scam, plain and simple," reads a typical Crawford post.) "We're in favor of Silicon
Investor, but we want the discussion to play by the rules," maintains John Mason,
director of business and strategic planning for Osicom. "If people have analysis to do
on the company, we want them to do it. But this is more than an issue of Crawford's
being more bearish than bullish. Falsehoods are falsehoods, period. We want the
dialogue to be decent."
That's not a simple wish. "We've seen it happen again and again. All the bulls will gang
up on the one bear and try and get him kicked off the site," Jeff Dryer says. "They'll
start sending e-mail saying, 'You've got to do something about this person. He's
harassing us.' And they'll take the fight offline, as well. They'll start doing some really
amazing things like figuring out where they work and calling them there." As for the
Osicom lawsuit, Brad Dryer says they'll try to stand by Crawford. "We can easily stop
him from using the site, but we can't set that precedent -- if we allow Osicom to get
away with it, we're going to have companies left and right threatening the same thing."
Likewise, Paul Fiondella, owner of the software company Softel, used to be a
card-carrying SI bull, with fully 100 percent of his money in tech stocks, but
he has "turned," he admits. He's seen as a pariah in the community. And what's more,
he knows it, as his postings indicate:
Hell, I'm so good at getting people pissed off I have to pinch myself sometimes to stop.
(You know how serious some people are.) I especially love Paul Engel. He is so
pissed off he rants and raves about me even when I'm not here. My whole supposed
financial history was dissected by him at great length. What an obsession. What a hoot.
The response was fast and furious. "Paul, I don't really notice you pissing anyone off on
this thread. All I see here are a bunch of pretty happy campers. The only one pissed
off around here seems to be you," lashed out Ian Davidson. Paul Engel chimed in with
a less-than-academic contribution, calling Fiondella "an orifice of excretion."
Says Fiondella, "What I can't understand is this: If you're a person who has held a
stock like an Intel or a Microsoft and are sitting on an enormous profit, what makes
you think it's going to continue to do what it's done? Where's the growth going to be
coming from to sustain this? The 40 percent growth they were getting from Asia is
gone. It's gotten completely out of control."
Now Fiondella won't touch a tech stock except to short it, and while he posts on SI
less now than he used to, he still unleashes a barrage every now and then, like this one
on Feb. 18 questioning the sanity of Intel fans: "Investors??? You want a sure thing.
You don't want to hear anything bad about your 'investment' in Intel. What you and I
and everyone is doing in this market isn't investing, it's gambling. Hope you sleep well
at night with that thought."
Just want to add that today I feel that Compaq has BECOME my father's Oldsmobile.
-- Dulane U. Ponder
DP. . . Was your father's Oldsmobile reliable? Maybe we are becoming more like our
fathers too, investing in more conservative stocks.
-- Loki, Feb. 20, 1998
There's been a bit of a change in the wind at SI over the past few months, one that all
investors might want to keep in mind. The Dryers see it. The hard
cores see it. It's the shift to the so-called tech blue chips.
"A lot of investors have been burned on the IPOs and the smaller-cap companies," Jeff
Dryer says. "Now the common wisdom is that you should invest in the leader in each
industry." Even Dryer, the co-owner of a small startup, is amazed by the current
valuations. "The IPO market, after slumping November through January because of
worries about Asia, is red hot right now," he says. "Internet companies with no
fundamentals are going public at valuations of between $300 million and $500 million."
CDnow, an online seller of compact discs, reported $7.9 million in sales and lost $6.4
million last quarter but was still able to float $65 million in stock on Feb. 10, an offering
that quickly grew to $90 million in value.
While Silicon Investor's early days were dominated by exactly that kind of initial public
offering -- highfliers like Netscape and Yahoo! -- the five stocks with the highest traffic
in recent months are Intel, Cisco, Ascend, 3Com and Applied Materials. "Many of the
diehards think that companies like Dell, Compaq, Intel, Sun Microsystems and
Applied Materials will never go down in value," says Sankar Acharya, who has cut
back his technology exposure to half of his portfolio. "Or they believe that if they do go
down they'll eventually rise."
Veterans like Flayler concede that the Asia crisis has taken its toll. "Over the last few
months you've had to be on top of Asia all the time. It's kind of a bummer," he says.
"It's kind of going away, [though]. Now I'm focusing on the fact that all the markets are
hitting new highs." Notes Digital manager Dodge: "I haven't seen people go to utility
stocks, but I have seen people say, 'I'm going with the blue chippers."'
Antol has also joined the blue-chip movement. "I believe maybe the next four to five
years are going to be huge for technology companies like IBM, Hewlett- Packard,
Dell. But look what happened to Netscape. It had its ride. Now who knows if it's
going to be around in a year?"
---- INDEX REFERENCES ----
NEWS SUBJECT: Analysts' Comments; Personal Finance; Stock Market News
(ANL PFN STK)
REGION: North America; United States (NME US)
Word Count: 4315
4/1/98 SMARTMONEY 104
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