The week between Christmas and New Year's is a special time here on Wall Street. Most sensible, wealthy people are off on vacation. Rush-hour Manhattan is transformed into the Land of the Empty Taxis, a sight as rare as a labor organizer on CNBC. Apartment dwellers present their supers with the traditional gift of a late-model sport-utility vehicle. (Anything less, sad to say, and you'll risk suffering sullen stares and unresponsive service in the coming year.)
Finally, those of us on the skeleton crew here at the research lab pause to reflect on the Five Dumbest Things of the Year.
Compiling this list is a responsibility we don't take lightly. We spend several minutes arguing about the lineup -- no doubt debating as intelligently as
editors did in deciding whether the Person of the Year should be New York Mayor Rudolph Giuliani or war hero Geraldo Rivera.
(Note to Geraldo: The next time you're driving your Bentley south on West End Avenue and you get a red light, be sure not to pull so far forward that you block the pedestrian crosswalk. It irks the little old ladies trying to cross the street, plus, any grumpy, spiteful reporters in the neighborhood.)
Now, where were we? Oh, yes. The focus of contention around the lab was what indeed distinguished a Dumb Thing of the Year from a Dumb Thing of the Week. After much name-calling and fistfighting, we decided that for a Dumb Thing to be Dumb on an Annual Basis, it had to be something that we might not have judged as Dumb had we written about it as it happened. It had to be something whose Inner Dumbness took a while to shine through.
Unfortunately, once we all decided on that, we realized there were one or two Dumb Things that didn't meet that criterion but were so representative of Broader Trends of Dumbness that they begged for inclusion.
Ultimately, we decided, the Five Dumbest Things of the Year on Wall Street would be whatever we said they were. So here goes.
1. Not Worth the Worth It's Printed On
Is it really fair, one might ask, to pick on someone for praising
before the energy company's spectacular fall?
After all, on Enron's road up to a $60 billion-plus market capitalization, carloads of analysts, investors and reporters raced one another to heap praise on Enron and its executives, including Chairman and CEO Kenneth Lay and ex-CEO Jeffrey Skilling.
Making fun of someone for gushing over Enron is pretty much like ticketing drivers for speeding on the New Jersey Turnpike. There's no shortage of suspects.
Well, as a traffic cop may have told you once, you gotta start somewhere.
So let's single out for greatness the insightful Enron coverage from
magazine, the publication that named Lay one of the
50 Best CEOs of 2000, singled out Enron's stock for praise
in its December 2000/January 2001 issue, and, most notably, anointed Skilling the
second-best CEO in America this past May, behind only
What's remarkably Dumb about
Skilling selection is how the evidence of his impending downfall is smack in the middle of the magazine's brief, glowing profile of the soon-to-be-spending-more-time-with-his-family CEO. (The blurb was written by Randall Lane, but presumably he's just a mule in the
organization, carrying out the orders of some mysterious kingpin.)
For example --
trust us, there are more --
spins an anecdote about how Skilling, during a 1996 scavenger hunt he organized in the Australian Outback, tried to gain advantage by racing his Range Rover away from the pack at 100 mph. An hour and a half later, a guide finally found him and broke the news that Skilling had confidently set off in the wrong direction.
Worth spun this anecdote as evidence of what a hard-charging CEO Skilling was. We, in hindsight, might draw different conclusions, starting with this one: Don't trust this Skilling guy at the wheel of your investment vehicle.
2. Napster Napping the Big Nap
A Web site is like a summer romance: As magical and alluring as it might be, if you don't have a reason to get together over time, it fades into nothing more than a pleasant memory.
Say, that's a good-looking tan you've got there
Yes, Napster. Remember Napster? Once it was at the white-hot center of music on the Internet. But since the company shut its music-sharing service during summer vacation, music lovers have moved on to other file-sharing sites.
Perhaps someone should have warned Bertelsmann about this. Oh, about $100 million ago or so.
Over the past year or so, you see, the German media giant has poured $111 million into Napster, if you believe reports from
Newsbytes News Network
And what will Bertelsmann have in return, if and when Napster returns in 2002?
A file-sharing system that may be better or worse than what people are busily using now. A fledgling subscription-based online music service that may or may not prove more appealing than similar services already launched by
AOL Time Warner
And -- how's this for a novel idea -- it has Shawn Fanning, a famous Internet employee who wears a baseball cap to the office.
recently picked up the assets of the Excite portal for $10 million.
bought wireless provider
assets for half that.
Something tells us Bertelsmann overpaid.
3. Hot Tourism Tip: When You Visit Afghanistan, Be Sure to See the Bamiyan Buddhas
Talk about two years late and a billion dollars short.
In its timely and expeditious wisdom, the distinguished board of governors of the National Association of Securities Dealers this summer suggested analysts be a little more upfront about disclosing conflicts of interest.
Hold on. Let's not be too hasty here.
Yes, it occurs to the just-awakened Rip Van Winkles at the NASD what occured to editors at
about five years ago: Perhaps if an analyst talks up a stock in the media, he should say whether his firm has done banking for the company or has some other financial tie.
The present value of this edict seems minimal. Caution rules the current brutal market, so self-serving and outlandishly bullish recommendations have dried up. Plus, a lot of media outlets have been more diligent about running conflict-of-interest caveats. Maybe if this rule had passed in 1999, it might have muzzled the bull market frenzy by a material amount.
But now? It's like sending out the beach patrol to enforce no-swimming rules on Coney Island. In February.
4. Past Performance No Indicator of Future Results. We Hope.
Speaking of full disclosure, got to love the folks over at
Back in the late '90s, when Chase's private equity group enjoyed phenomenal returns on venture capital and leveraged buyout investments, Chase slid those earnings into its overall report with little fanfare and less attribution, as if to say, "Hey, continuing operations are going just fine."
But about a year ago, just as the private equity market made its sharp turn south, JPMorgan Chase started disclosing the performance of the private equity group prominently and separately, as if to say, "Hey, we'd be doing fine if it weren't for these jokers."
So, with timing so perfect it could coax Henny Youngman to sit up in his grave and play his violin, over the past few months JPMorgan Chase has been for the first time -- guess what? -- seeking outside investors in its private equity fund. Not just any investors, but shy and cautious private equity investors such as college endowments and pension funds. And not just any private equity fund, but the largest private equity vehicle ever: originally $15 billion, but since scaled back.
Their first investment, no doubt: A new energy trading venture led by Jeffrey Skilling.
5. Ouija Get a Load of Those Predictions?
The thing that makes
better than its competitors is that it doesn't engage in the namby-pamby, on-the-other-hand journalism of most business magazines. It'll take stands on things: This is good, this is bad.
So here goes: Its December 2000 stock picks for the year ahead? Dumb. What it labeled "Seven Stocks That Are Ready to Run" would have more aptly been called "Seven Stocks to Lose Your Shirt On." Only one of them bettered the benchmark
tacked on 66%. Thank goodness there were stocks like
(down 78%) and
(down 90%) to help mute that performance. An equal-weighted portfolio of
picks would have fallen 37% in 2001. By contrast, the S&P dropped 13%.
Yeah, hindsight is 20/20, and nobody's perfect. But the thing that made this basket of stocks so absolutely dumb was its risk profile. Five out of seven were techies: two biotechs (Genaissance and
), two(!) B2B plays (Ariba and i2) and an industrial company that had happily shifted its focus to "high-growth telecommunications and electronics":
Come on. This was an extremely dangerous portfolio, the kind of stuff you'd preface with a "don't try this at home" disclaimer. After a year like 2000,
should have known better.
I mean, we're pretty sure they should have known better. Maybe this is just
Dumb Thing, or maybe it's an indictment of something bigger. In fact, we at the Five Dumbest Things research lab condemn all list-making, that pernicious folly and shameless crutch employed by so many financial publications.
See you next week!