Editor's Note: James J. Cramer is the keynote speaker at the Financial Technology Expo, held today at the Javits Center in New York City. We're running the full text of that speech, beginning here with the first installment. Be sure to check out Part 2 and Part 3 later today.
Never has there been a game with more winners and more losers than the dot-com world. The amazing thing is not that there are winners and losers, it's that they keep changing. A loser one day may be a winner the next.
Let us know what you think about Cramer's speech.
Take me, for example. I've done pretty well for myself in the hedge fund game picking winners and losers for
, the $280 million hedge fund I run. And my hobby,
, successfully completed an IPO earlier this year and is about to pass the 100,000
subscriber milestone, only the second paid site to do so, and the first is the esteemed
Wall Street Journal
. Hey, I seem like a winner.
So imagine this scene, in my favorite diner in my hometown in Jersey that my family likes to go to on Saturday mornings. We're sitting around, my daughters and me, minding our own business picking at each other's pancakes, waiting for my wife to join us, and there is a guy in the next booth, doing some sort of sales job on the person sitting opposite him. He's talking so loudly that my 8- and 5-year-old girls can't get a word in over him. So they decide to listen.
"You see, there is a gold rush going on," he's telling his target, "a big gold rush, and we at
don't care who wins or loses. In fact, it's like the '49ers. None of those miners made any money. The only guys who did great were the people who sold pickaxes and mining pans. We are selling the pickaxes and the mining pans to those who set up Web sites. Let them all kill each other for all we care. They are the losers, and we at Exodus are the winners."
My eldest, always inquisitive, always willing to eavesdrop and given to mischief, smiles at me and says, "Daddy, who are these losers that man keeps talking about?" My youngest, loving a negative bandwagon, immediately jumps in and chants, "Who's a loser? Who's a loser?" I blink one eye shut and I whisper, "I think he's talking about your daddy!" "But you're not a miner, are you?" my crestfallen youngest asks. And at that moment my wife joins us and I am saved any further embarrassment about my true vocation.
Yep, in the dot-com world, things -- the winners -- change on a dime. Certainly the infrastructure plays are going to be winners. As one business after another discovers that almost everything can be bought or sold on the Web more quickly and better than any other method, companies who can offer faster, better and easier access to the Web are going to rack up the business faster than they can guide estimates higher on Wall Street.
But the area that is going to go through the most profound change, the one that is still waking up to the ramifications of the Web, is Wall Street itself. And it is Wall Street that will see the biggest winners and losers.
Amazingly, I still don't think we know yet who they are going to be. I don't believe the landscape has even begun to change. It will -- in ways that will knock our socks, and our profitability, off. I do know this, though: We are about to see a dramatic unbundling of the investment bank because of the Web, and it will leave none of the players untouched.
Let's look inside the brokerage at the turn of this century. The vast majority of the people at a brokerage are engaged in finding and soliciting clients -- asset-gathering -- and promoting securities to them.
Another group, the research and corporate finance arms, are in charge of soliciting corporate clients to get their securities, chiefly initial public offerings, to give to their sales and trading people to sell. Strip away the trading for principal accounts and the mergers-and-acquisition folk, and you have the pattern, a pattern that is mostly unchanged for years and years and years, even though it has long outlived its usefulness.
Oh, it worked fine as long as institutions dominated the buying and selling of securities. It always worked best for those institutions that did enough of the routine business to get the choice initial public offerings.
It still works best for those privileged few. But it did not anticipate the rise of the individual investor, or the do-it-yourself movement. It did not anticipate the great wealth change that is about to happen in this country as a generation of new people inherits more than they have ever dreamed, and want to take control of it, not send it to some mutual fund or give it to some broker who bought utility stocks for their parents. It did not anticipate the incredible democratization that the Web has brought. And it did not anticipate the brutal degradation that the full-priced industry has undergone at the hands of the more aggressive Net brokers.
Check back later for the next installment.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long TheStreet.com. 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