MANAGER: "Why is the logo on fire?"
TECH: "Because it's a, you know... a burning... logo."
-- ad copy
WE WERE RE-READING Dinesh D'Souza's "The Virtue of Prosperity" over the weekend and we must say we found it a fascinating experience. It was not merely that we are fond of Mr D'Souza's writing, but rather that Mr D'Souza based some parts of his book on interviews with whom society once thought were the emerging technocratic elite; those New Economy oracles who smugly intoned that the Internet would change business, change finance, change economics.
Publication date? November 9, 2000.
Now, we certainly do not intend this as criticism of Mr D'Souza's excellent work. The lessons he imparts in "The Virtue of Prosperity" are as timeless as ever, particularly with the still-present debates over such things as executive compensation and the changing nature of American capitalism. We are merely saying we found his book even more interesting now because it featured some of these high-flying Internet types.
We wonder what has happened to a lot of the folks with whom Mr D'Souza must have met and spoke. Not so much the early Internet pioneers; almost all made their piles early on enough so as to be forever insulated from the pitfalls of modern life. Nor are we interested as much in those who weren't as wildly successful, but who still saw the writing on the wall. No. We are interested in what happened to all the others -- the true believers who saw their options drown and their holdings crumble and their jobs disappear, only to find themselves finished off by the tax laws. And boy, do those laws suck if you're on the wrong end of them.
Indeed, looking back, we should have guessed something was wrong in 1999. For it was then that we spoke with a good friend of ours regarding one such Internet company, which our friend informed us had an excellent technological innovation. After doing some research, we found it was trading at about $5 CDN on a low-level regional exchange, and hence we could purchase a great deal of its shares for just a few thousand Yankee dollars. However, the next day it had jumped to $6 CDN, and we were very leery of sinking such a portion of our limited capital into this particular equity. So we gave it a pass.
The stock went to roughly $95 CDN in a year.
Dear God in Heaven. A fifteen-bagger. Enough to buy a Mercedes and take a month-long vacation in the islands and still have plenty left over for investment elsewhere. We daresay we could have had anything our then-23-year-old heart would have wanted.
We offer this example merely as prima facie evidence of how wacky the market was back then. Can you imagine if we had actually bought? Oh, the very idea, a 23-year-old kid making that kind of cash on a long-shot trade -- it boggles the mind!
Still, we're glad we didn't in a way. The lessons we learned from not buying may prove more valuable in the coming years.
Of course, the stock in question is now back around that $5 CDN price, and the markets' workings dictate there were probably many more losers than winners in the aggregate with that particular equity. One could say the same for the broader tech sector, unfortunately.
We are sorry to say that, out in Los Angeles, we knew a few people who lost in that market -- and when we say lost, we mean lost. Ninety percent lost. From comfortable to barely-getting-by lost. And while we were not one of them, we saw how widely it cut -- from one fellow who lost hundreds of thousands to one friend of ours who lost but a few hundred; but still, a considerable percentage of his investment in a particular equity at the time. And then the whipsaw really came down -- when the secondary effects of the crash started affecting people we knew ... it was not a pleasant thing.
Of course, that's not to say there weren't winners -- and we knew some of those as well. But the real winners, as we see it, were those who simply bought and held. Not the Internet stocks, but the old stand-bys, the safe stuff. And when the money flowed out of the tech sector, that's where it went.
So why tell you all this? No reason, really; it was just flowing through our mind, and we thought we'd get it out. But we would say we learned three things from those heady days of yore. First: long-term thinking really, really does pay off when all is said and done. Second: this may have been the first speculative bubble we saw in our short life thus far, but we have a feeling it won't be the last. This leads us to our third and final observation:
Sometimes, caution is truly a virtue.
Posted by Benjamin Kepple at April 4, 2004 10:38 PM | TrackBack