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Doubting the Dot-Coms

In a speech to the board at Delphi Financial, Cramer sums up his role in the past and future growth of <I></I>.
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(The following is the text of a speech given by James J. Cramer this evening to the Board of Directors for the Delphi Financial Group. If you have some comments, please send a note to )

Was the whole dot-com thing a big fraud? Was it just a sham created by investment bankers and venture capitalists to take advantage of the new massed powers of online traders? Were people simply voting for sites rather than investing with dollars?

Wow, that's a mouthful of bogus, isn't it? As we have watched Internet Sector

index (the DOT) take a beating and new issues from

Ask Jeeves




be the butt of many jokes, one has to wonder whether this movement wasn't the work of some mad geniuses trying to separate people from their money in a newfound way. I know after reading my third straight beating at the hands of Alan Abelson in


this weekend -- this one without the dignity of my name and mistaking me as the proprietor of

-- I had to wonder myself about whether our revolution was simply in our own minds and our own dollars.

I can't speak for other dot-coms. I don't want to get into the head of why

Mike Ovitz

loves dot-coms or whether I can't decide if



likes its dot-com or hates it, as it has flip-flopped so many times. I don't know if we need hundreds of online bookstores and office supply and drug stores and search engines. I do know what the stock market thinks: This move is kaput. Only the constant queue of underwritings and the refusal of the analysts to downgrade keeps the charade alive.

Which brings me to

. I don't run


. Sometimes I wish I do, but I have my hands full at my hedge fund and we have professional managers over there at 2 Rector, which is what I call it, because that's where

is located. (My office is across town.)

Heck, I don't even go over there except on invitation, and I don't get many of those. For all the people there know about me, I am just some sort of wildman writer trying to make an impact. I'd have to quit my hedge-fund job to go to 2 Rector, and I am not about to do that.


was my idea, and maybe this crack in TSCM might be the call to ask whether I was wrong or the market was wrong or why did I even bother. Don't think it hasn't occurred to me during our sickening $70 to $17 decline.

First, let's get some facts straight. Lord knows I had to hear enough innuendo and trash about me during that miserable quiet period where anybody could sling mud at me. I did not approach

Marty Peretz

, the editor and owner of

The New Republic

, to make a fortune as a dot-com proprietor and leave everyone else holding the bag or to get back at my friends at


for not standing up for me after an


investigation into an article I wrote about four stocks I owned. (They stuck by me and everybody in the journalism world knows that some of those guys remain among my closest friends.)

I did it because I always wanted to start a news organization but I could never afford the trucks, paper, mills and capital costs that it takes to own a paper let alone a chain. They have always been prohibitively expensive, but Web technology made it possible to compete much more cheaply and better.

At the same time I was still staying close to


and I came up with an idea to create

, a more professional version of

Motley Fool

that would combine the world's greatest business journalists under one cyber-roof. It included breaking news; a whole bunch of hourly Heard on the Streets with meat; a general accountability of television and news commentators, called Truth Serum; message boards for thinking investors that could not be corrupted by personal attacks; and a place for money managers to go at it with each other. I also wanted a chance to do a personal diary of my own days, which I thought was pretty exciting. The idea was to tap into the needs of the do-it-yourselfers who could not pay $1500 a month for a newswire but want to be informed during the day about important developments in their portfolios. Lower commissions and self-directed 401(k)s had made this segment an explosive one that needed servicing. The Web was perfect for it.

Dow Jones loved the idea, but executives there were worried about what it would do to their own product, the richly compensated wires. My

was going to charge a fraction of what they charged. They were also unwilling to give me any ownership whatsoever. I wanted equity. I thought the same way about SmartMoney and worked hard to help launch it, but ended up owning nothing. That was a travesty. I was willing to have as little as 1% equity in the new online version, but that got nixed.

So I took the idea to Marty Peretz and we split it 50-50. For the next five months we recruited a team of people, many of whom are still with us, and we launched in November of 1996. AT NO TIME DID WE EVER THINK THAT WE WOULD BE A LOVED OR REVILED DOT-COM. We just figured we could create great financial journalism without the big overhead of mailing and printing and paper and newsstand costs.

Throughout this period we lost money. I went to



Time Warner




and even


again, and just about anybody else who would listen and asked them to help out or take a stake, but I got laughed at. Nobody wanted to be associated with this money-loser, even as I said we were building a superior brand. I have some pride, having run a successful business for 14 years and having helped start

American Lawyer



, so I didn't like it. But I kept my tongue. I would show them.

After Marty and I had sunk considerable amounts of our net worth in the thing, to the point that we had a much-publicized fight about it -- of course no ink for our peaceful resolution of the dispute -- we realized we needed some pros to be involved. My life at home had become sheer hell as I was working every night and every morning before work on writing for and promoting


. I wasn't happy with how I was doing at my hedge fund either. (Also much publicized.) I had gotten the ultimatum that any of you family-oriented people have received when you were working well beyond your allotted work time.

So we went to see the venture capitalists at

Flatiron Partners

who were instrumental in pushing our vision toward a business that could scale. That was the greatest break


ever got and they are the unsung heroes of all of this. They believed.

Remember the dirty secret of publishing: All of the dollars go toward getting the publication to you. Circulation and subscription are big money losers. The bundled entity of a newspaper is really just about wrapping content around advertising and making sure that advertising gets to paid readers. As much as we would like to think otherwise, with the exception of a handful of papers, content is just a big pain in the butt, something that has to be compensated but is really a byproduct of advertising.

I knew that this new medium didn't need that huge capital infrastructure to get it to you and I knew that circulation and subscription could be actual revenue streams if you got the right talent and content. That made talent and content the driving force, not advertising. The ads would have to come if we could prove that people would pay to see us. We have; it has.

Now hardly a day goes by when the old-timers don't exact their revenge in some slight or mention about the current stock market. Plenty of them are jealous and want to see us fail with all of their heart. Some of them want us to fail because we are competitors with a lower cost structure (although not as low as I thought, because technology costs money, lots more than Marty and I bargained for.) Some of them want us to fail because they failed to invest in us when I came calling and then became embarrassed when we succeeded. Some want us to fail because we insist on charging and they can't BECAUSE THEY ARE NOT GOOD ENOUGH. And some of them just want us to fail because they hate me. Yeah, let's face it. In order to get us in front of eyeballs I had to be more promotional and outgoing and controversial than either I -- or my wife for that matter -- cared for me to be. I have always had controversial views but I kept them to myself. Not any more.

Some of it was a blast, but most of it was a chore. I have never liked showboats and suddenly I was one. As soon as I could I tried to pull back from being so out there, but I still want to help

in any way possible to make it great. I don't really care for being attacked, but I have attacked and I have to expect the consequences or shut up. I have opted for the former.

Bottom line: I wanted to start a media property that I could work for. We have succeeded so far and are determined to succeed much, much more. We think the dot-com method of news distribution and information is cheaper and greatly superior to all others.

Last week for two days one of my terminals was down. I will spare you the name of it. But after a dozen calls and lots of technicians it came up again. I am sure those technicians and their time and energy on my one machine were equal to all of the costs it took to put


out for a week to all our readers. That's what being a dot-com is all about: transmission costs that are minimal so you can spend a massive amount getting the right talent. Because, unlike the people who own newspapers, editorial is not an afterthought, it is the be all and end all. You, not the advertiser, are the customer.

I don't know where our stock is going to go. All I know is that I will continue to try to do my best at my hedge fund and in my diary and other articles. I am confident that our team will execute. If not, someone else will execute

for us. That's business. In the end, we have to underpromise and overdeliver like anybody else. But being a dot-com sure helps that happen. I know this: Having written and worked for this dot-com, I have no desire ever to own a print business again. Too slow, too expensive and too, well, past. This form of business is the future. It is what












and all of the other great hardware and software companies are counting on.

I wouldn't bet against them. Would you?

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Cisco, Intel, Microsoft, Hewlett-Packard and His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at