George Gilder, Katie Hafner of the New York Times writes, "however, is no wacko, and his invectives are anything but random. Through the years, he has been building his own version of a socioeconomic unified field theory, integrating politics, sex, economics and technology, with a dose of religion thrown in."
Is this supposed to be ironic?
Alas, probably not. She appears to be telling it what she thinks is straight. Here's her take on the backstory:
The Revolution Is Coming, Eventually: ...Investors who believed in Mr. Gilder's wildly optimistic predictions about the telecommunications revolution... spent the last few years watching their portfolios unravel.... Now, slowly but surely, portions of the telecom industry are recovering. Shares of the companies Mr. Gilder recommends in The Gilder Technology Report - a more diverse mix than it used to be - have outperformed the Nasdaq by a healthy margin for the past year, and his adherents are cheering up. And Mr. Gilder is gradually regaining the credibility that nearly vaporized before his eyes three years ago.... In early 2000, Mr. Gilder presided over a small but lucrative empire that consisted of his newsletter, the Gilder Technology Report, and its various spinoffs - with names like Digital Power Reporter, Dynamic Silicon and the Supply Side Investor - half a dozen annual conferences and a staff of 55.
At the time, Mr. Gilder's net worth, around $7 million, was modest by dot-com standards, but Merrill Lynch and Hambrecht & Co. were vying to take his company, Gilder Publishing, public, valuing it at $150 million to $200 million. His newsletters had 110,000 subscribers.
Then, as quickly as the riches and the promise of more riches came, they vanished. People canceled their subscriptions by the tens of thousands; only the original newsletter survives today, with just 8,500 subscribers. Since the tech bubble burst, all but five staff members have been laid off. A former business partner holds a lien on Mr. Gilder's house. And in a cruel twist of fate, Mr. Gilder, an outspoken critic of the nation's tax structure, finds himself at the mercy of the Internal Revenue Service, as he awaits the agency's final decision on the terms of his tax bill....
[W]hen he opens his mouth to rail against "idiot" American economists, corporate lobbyists and the perniciousness of taxes ("the power to tax is the power to destroy") and government regulation, the mild manner evaporates and Mr. Gilder might be mistaken for a glassy-eyed nut case on the University of California at Berkeley's Sproul Plaza shouting random invectives at passers-by. Mr. Gilder, however, is no wacko, and his invectives are anything but random. Through the years, he has been building his own version of a socioeconomic unified field theory, integrating politics, sex, economics and technology...
Today George Gilder claims that he saw the dot-com crash coming. He offers three different explanations for why his newsletter was still very, very bullish on telecommunications company stock values in late 1999 and 2000--and thus why people who took his advice found themselves "mad and hurt and aggrieved and pained and broke.... These people didn't lose 50 percent or 80 percent of their money. They lost 98 percent of their money."
First, Gilder says that it was not his business to forecast a correction or a crash: "Mr. Gilder was and still is a regular presence in the Telecosm Lounge, the electronic bulletin board for his newsletter subscribers. He told people on the board many things as the stocks went up, and then as stocks fell. But the one thing he never told them was to sell. 'I was in this really ridiculous position,' he said, 'because I explicitly didn't do timing.'" But it's not "market timing" to warn your subscribers that you think your "prime picks" are overvalued...
Second, Gilder says that it's his subscribers' fault for believing that Gilder's prime picks were likely to go up in value: "Mr. Gilder said, it was 'obvious to anyone with eyes to see' that the stocks would undergo a massive correction. 'I never said it,' he said. 'I'd hint at it on the board, but I never said it.' Many of the companies - including Global Crossing, Global Star, Metromedia Fiber, WorldCom (which now is known as MCI) and Corning - are now either reduced to wisps of their former selves or gone entirely." But the entire point of running a newsletter that gives prime stock-market picks is that your judgment is supposed to be better than what is "obvious"...
Third, Gilder says--in an interview for Wired--that he didn't want to warn his newsletter subscribers that his favorite telecom stocks were overvalued because he was afraid that if he did warn them then they would be angry at him:
Wired: "I knew that it was going to crash, I really did," Gilder says, looking out a window on to Main Street. 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 it in a newsletter."
He made the recommendation to sell, he admits, only within the limited confines of the Telecosm Lounge, his online salon for newsletter subscribers. He fumbles for words, starting one sentence, then another, before growing uncharacteristically silent and staring off into the distance....
"If I had said, 'Hey, this is a top, you should all sell,' it would've 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.
"It was quite terrifying. I really didn't know what to do."
A normal person would have worried much more about how mad his subscribers would be if he kept telling them bullish things--did not tell them to sell--than if he told them to sell.
But whichever explanation you buy--that all the people who thought he was in the stock-picking business because he published a newsletter that picked stocks were mistaken, that it was the fault of those who took his newsletter's advice because they were blind idiots not to see that telecoms were overvalued, or that he couldn't bear to disappoint his subscribers by telling them that the party was over and telecom stocks overvalued--one question remains:
Why would any New York Times reporter write that such a guy is "gradually regaining... credibility"?Posted by DeLong at October 19, 2003 08:51 AM | TrackBack