January 23, 2005
Stocks, Lies, and Videotape
The article that follows was originally written back in February of 2002, and then updated in January of 2003. I was able to write it only because of pure luck — the videotape I talk about in the article is very real, very amusing (in an awkward, deja vu sort of way), and very much still in my possession. Back then, I posted the article on my now-defunct "Stocks & The Market" website. People got a kick out of it — even the ones whose investment accounts got trampled by the bear market of 2000-2003.
Anyway, I figure now is as good a time as any to offer it up one more time. As long as CNBC and all the other media outlets parade market gurus and fund managers in front of the camera to tout stocks and make ridiculous divinations of market direction, then this article has a reason for publication.
Besides ... it's not often you get to videotape stock-market history.
So back in February, 2002, I was going through some old unlabelled videotapes in our bedroom TV/VCR cabinet, looking to make some space in there and maybe find a few tapes with material over which I could record. I unearthed a few football games, some of The Wife's long-ago recorded A&E TV movies, and . . .
(Insert "Ta-Da!" sound here.)
. . . a special holiday Q&A edition of CNBC's "Taking Stock," subtitled "Investing the 2000 Way." I bet my face lit up like a streetlamp when I plugged that tape in, watched the CNBC fillers come across the screen, and shortly figured out what I'd recorded, and even better, when I'd recorded it.
The date of the show?
President's Day, February 21, 2000.
Tech stocks. (No, I am not making this up.)
So here's the relevant background data. According to my records, the Nasdaq level at the time the show aired (2-21-2000) was 4411.74. Check a historical chart, and what you'll see, a mere few weeks later, is the Nasdaq's all-time market bubblemania top. Yep — March 10. The day the Big Cash Enchilada that we so lovingly refer to as "The Naz" began its cataclysmic meltdown — spicy jalapenos and all.
Now, I'd been putting off folding a few piles of clothes the last few days. I figured that this was as good a time as any to get that laundry folded — and revisit those heady Nasdaq days while I was at it. Besides — wouldn't it be great to be able to look back at what those hosts and analysts and mutual fund folks were saying back then? I mean, we all know that those guys were touting every tech stock imaginable at The Top, and most of the way back down, but we generally don't have any hard evidence to speak of.
Well, now I've got it.
Yes, truly, the greatest gifts are often bestowed by accident.
The first Q&A panel on the tape is comprised of host Martha McCallum and three tech fund managers, one of whom is Erik "I Look Great in Black" Gustaffson, manager of Stein-Roe Growth Fund (SRFSX). One of the other fund managers takes a cue to talk about the "hot" fiber optic segment. He is prompted for possible "bargain" buys in the area (the Nasdaq had "pulled back" more than 130 points that previous Friday, so obviously stock bargains were out there left and right, lined up like empty Schlitz beer bottles, glimmering and decorating every fence the greedy investor's eye could see). Immediately he spouts off the Usual Suspects: Corning; JDS Uniphase; Avanex; SDL; Sycamore Systems.
Mr. Gustaffson then interrupts with this gem (and I freakin' quote):
|"Martha — Martha — let me just make a quick point. If you were to buy every one of those companies that Jeff and George just mentioned, and not hold them for a week's forecast — not hold them for just a week, I mean — but hold them out for the next two or three years, you are gonna make a ton of money. This space is so robust, you buy a little piece of all of 'em, and you win."
Well, if you follow stocks, you know those picks turned out ugly. But in this age of performance-minded investing, I wanted specifics. So I hit pause on the VCR. Headed to my computer. Pulled up my charting program . . ..
Imagine, if you can, the jaw-dropping shock which comes from finding that back in February, 2000, on the Friday previous to that show's airing, JDSU had closed at . . . well, check out the following table:
Nice one, Erik. You outdid yourself, my friend. You da man.
Still, just to be on the safe side, I went back to the bedroom and rewound the tape a bit. Maybe what Gustaffson really said was "hold them SHORT for the next two or three years." But alas, 'twas not to be. Never let it be said that I didn't give the guy the benefit of the doubt.
Yes, videotapes like this are what make market life so darn much fun. Well, maybe not for guys like Gustaffson. But then, he's getting paid the Big Bucks anyway, isn't he?
Besides — in his world, that's all "past performance" now. And he probably doesn't put much stock in that anyway.
Host Martha McCallum asks George Gilbert, co-manager of the Northern Technology Fund (NTCHX), for his best pick in the semiconductor area. His response? PMC-Sierra.
Back then, if Mr. Gilbert really was buying PMCS for his fund, he was paying in the neighborhood of $152 per share. Which is only bad, I guess, if he's still holding the stock . . . or if any of the show's listeners thought the guy knew what he was doing and acted on his word. Why?
Because today, January 23, 2005, the Market Gods have deemed PMCS fit to trade at $9.26. Which is significantly better than it was on January 26 of 2003, which, for those historically-inclined, was a whopping $5.47 per share.
Whew. These tech stock "expert" types didn't hold back, did they?
Somebody give this guy a stuffed monkey or something.
This one darn near killed me:
|CALLER "BILL" FROM NEW YORK: Hi guys. I'd like to ask about the prospects of a couple of web hosting companies, specifically Mercury Interactive, and perhaps Exodus Communications, if you can get to that.
HOST MARTHA McCALLUM: Okay. Erik, any thoughts on those?
[Screen cuts to shot of Mercury Interactive chart, shown trading at $89 ¾.]
FUND MANAGER ERIK "SO COOL I'M STILL WEARING ALL BLACK" GUSTAFFSON: Sure, I've got thoughts on both. I think they're outstanding businesses and outstanding companies. Exodus is a web-hosting company that's growing dramatically hosting companies web appliances and web infrastructures, if you will. Basically they build huge data centers, stock 'em up with, uh, huge monster servers, and they host the web business of a company. Uh, nice management team, outstanding growth, moving offshore. I'd also include Global Crossing in there; that has a nice global center hosting business. Your second question, Dale, what was that?
HOST MARTHA McCALLUM: Mercury Interactive. Mercury and Exodus.
FUND MANAGER ERIK "IT'S ALL ABOUT THE BLACK" GUSTAFFSON: Yeah, Mercury Interactive is a software-testing company, basically, that tests software in these new application environments, and, uh, I think Mercury's got a huge run, and, uh, if you own both of those, congratulations, hold on to 'em; they're going higher.
Now, maybe it's just me, but you really have to appreciate a guy who can rattle off three stocks — three strong, surefire winners — and probably have "zero recollection" when he looks back two years later to find that the BEST-PERFORMING stock of the trio was DOWN ONLY 60%. That's right. Those babies are now (1-26-03) trading at $.02 (EXDS), $.64 (GX), and $35.40 (MERQ).
FYI: Back in February, 2000, Exodus and Global Crossing were trading at $62 and $52, respectively . . . prices that probably would've conned all but the most astute buy-and-holders into thinking that they'd found two companies that actually had a clue.
Dateline: January 26, 2003.
So The Wife was gone this weekend. I decided to drag up the CNBC tape again and watch some of the later portions, which I figured would be about as exciting as watching bermuda grass change color in spring. Boy, was I wrong.
Heaven knows I would be remiss if I didn't transcribe this next prescient exchange. I mean, how the heck could you, as a stock analyst in the Energy and Oil Services Sector, sleep at night if you'd gone on a national cable TV channel touting the very company that turned out to be the Poster Child for Toasted Shareholders in the year 2001?
|CALLER "ERIC" FROM OREGON: I was concerned about Enron and its business, uh, emerging business in the high-speed, uh, data communications, uh, bandwidth —
HOST TYLER MATHISEN: All right, let's talk about that. There's a really exciting stock lately!
ANALYST ROBERT "CHECK OUT MY BRIGHT RED TIE" CHRISTIANSON (FIRST ALBANY): It's an exciting stock; it was a triple last year. Uh, Enron really is a new-age energy company. I'd go a step further and say it's a "New Era" company altogether.
[Screen cuts to shot of a one-year Enron chart, shown trading at $69.19, right after having gone parabolic in January/February of 2000.]
ANALYST ROBERT "SO BRIGHT IT COULD BE A BLOOD RED TIE" CHRISTIANSON (Continues): Uh, the company is the past master in trading natural gas — about a ninety billion dollar commodity in this market. They moved on to electricity; uh, three hundred billion is the annual bill in electricity. They trade about twenty percent of all electricity in the market. And now along comes telecommunications. And the broadband of a lot of these big telecom companies is probably tradable. And they have an initiative to trade a lot of broadband. So it's a New Era company, and it's not gonna just trade broadband here in North America. They have objectives to trade it in, uh, Europe and South America as well. So this is a growth company that's hitting it's, uh, growth targets. Frankly, it has no one in their path. There's no one really trying to, uh, replicate this. So—
HOST TYLER MATHISEN: So an unmitigated "Buy?"
ANALYST ROBERT "BAD GUYS NEED BAD TIES" CHRISTIANSON: Unmitigated "Buy." Ninety-dollar target on it.
Now, I was never an owner of Enron stock, so my knowledge of its trading tendencies and all-time highs and such is pretty limited. What little I know about Enron concerns the Financial Train Wreck which we all heard so lovingly described — blow by blow, from caboose to steam engine — each and every night in late 2001. So I headed over and pulled up a short-seller's dream: the ten-year chart of Enron. A bit eerie, isn't it, that the absolute peak and double-top for Enron happened at what appears to be just over ninety bucks per share. Coincidence, or . . ..
Anyhow, after that $90 mark, you'd better have hidden the women and children. If that's how the stock of New Era companies acts, then I believe I'll be burying my investment money out back. Maybe right beside the tomato garden.
It'll be safe from the analysts there.
Lest you think that these analysts were in the singular business of luring the investing public into the financial meat grinder that has been the bear market of 2000-2003 — by leading them into falling stocks, I mean — then I offer this following call. Never let it be said that analysts didn't attempt to steer folks away from what turned out to be profitable holdings:
|HOST TYLER MATHISEN: Let's go to Brian in California. Brian, good morning.
CALLER "BRIAN" FROM CALIFORNIA: I'm wondering how long it's gonna take for these oil drilling companies — like Falcon Oil and Global Marine — for their stock prices to really shoot up. Um, I bought it back back in, I think, April of last year at $6.85 — that's Falcon Oil. But, um, I noticed in the past history when oil prices have been this high, these stocks were up in the 30s and 40s.
HOST TYLER MATHISEN: All right, who'd like to pick this up? Fadel?
ANALYST FADEL GHEIT (FAHNSTOCK): Uh, just quickly, I do not follow the oil service stocks, but I can tell you that oil service stocks have a much higher beta. They are much more volatile to crude oil prices than oil stocks.
ANALYST ROBERT "GET MY TIE MORE TV TIME" CHRISTIANSON: We have a different take on this particular drilling cycle. Uh, the stocks that you refer to ...
[Screen cuts to shot of a one-year R&B Falcon Oil chart, shown trading at $13.]
ANALYST ROBERT CHRISTIANSON (Continues): ... are really marine contract drillers; they're focused on the Gulf of Mexico shelf. We believe you're, uh, really coming back onshore in the oil business. We'd rather see you own Neighbors Industries, a key energy services unit corp. Uh, the guys with the land drilling. We wouldn't own the marine drilling, uh, marine drilling guys.
Ah yes ... those testy oil drillers. I went over and tried to pull up a chart on R & B Falcon Oil, but found next-to-nothing. A quick search of Google showed me that apparently, Falcon had been acquired by some company called Transocean in 2001. And according to a price chart that, as of January, 2005, no longer exists, the acquisition had taken place with Falcon shareholders getting about $23 per share in Transocean stock. For our caller Brian, that would've been a nifty profit of about . . . oh, three hundred percent. But he'd have been taking a big chance holding that Falcon stock, what with Our Fearless Analysts above pooh-poohing the marine drillers.
Yes, it's a wonder any of us had so much as a dime left after all that, isn't it?
Reposted January 23, 2005
ALL ANALYSTS, FUND MANAGERS, AND WALL STREET EXPERTS WHO MIGHT HAVE VOICED OPINIONS OR PLAYED AN OTHERWISE REGRETTABLE ROLE IN THE ABOVE-MENTIONED CNBC PRESENTATION FROM PRESIDENT'S DAY, FEBRUARY, 2000:
In these difficult, tumultuous, and future-shaping times, I would like to take this opportunity to offer my exciting new SpectraMatic High Density Fiber Optic Translucent-Photon Communication Videotape "Blue-Screen Rendering" (NASDAQ TICKER: BUSTD) services to you. For a nominal charge (non-refundable in North America, Europe, Africa, South America, Asia, and the Middle East), I'm willing to completely and accurately record over this unusually vivid and singularly telling edition of "Taking Stock: Investing the 2000 Way."
My VHS over-recording method is state-of-the-art, quality controlled, and overseen by top-tier management teams, so you can be sure our "blank dubbing" is done right the first time, every time. Let's face it: The last thing that highly-influential, publicly-minded Wall Street industry pundits such as yourselves need is to appear (once again) looking like complete tools.
That, put simply, is bad business.
However, as you undoubtedly are aware, fine technology companies and their advanced, life-changing products do not come cheaply. Therefore, I am opening my SpectraMatic over-recording process up to all bidders in North America, Europe, Africa, South America, Asia, and the Middle East. You may rest assured that no preference will be given to anyone not willing to pony up a little extra coin on the side.
For those individuals who may cringe at the potential cost of such a technologically-advanced "blank dubbing" service, I would like to refer you to the words of none other than George Gilbert, co-manager of the Northern Technology Fund. His statement, so eloquent and succinct, was as follows:
"It's all about the data."
And indeed it is. Further inquiries, requests for high-quality and durable copies of the above videotape, and/or substantial monetary enticements may be made to info@ican'tbelievehetapedthat.com.
Reqests for overdubbing services in exchange for "tech stock," growth mutual fund, or forthcoming IPO shares will not be accepted.
Foul-mouthed or otherwise abusive inquiries will be deleted upon receipt.
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