Sorry, Mr. Gilder, No Excuses

Aug 07 2001

Yesterday the Wall Street Journal ran an extraordinary op-ed piece by George Gilder, called "Tumbling into the Telechasm." In it, the celebrated author of Telecosm and the publisher of the Gilder Technology Report lists all the federal government's catastrophic policy blunders that led to today's technology depression, a devastating bill of wrongs.

Gilder indicts deflationary monetary policy. He blasts socialistic telecommunications regulatory policy. He savages Internet tax policy. He eviscerates anti-competitive antitrust enforcement policy. And he is dead right on all counts. These are important truths that absolutely must be spoken.

The shame of it is that no one takes George Gilder's views on these matters seriously. And so Gilder's brilliant counterblast is likely to sink without leaving so much as a ripple.

Why? Well, as MetaMarkets analyst Sean Donovan wrote yesterday, "Mr. Gilder's op-ed piece reads like an apology." Or perhaps, if not an apology, then an excuse. According to Dick Sears' Gilder Technology Index Web site, in the tech wreck of 2000 - when the largest number of investors had put their faith in Gilder's "Telecosm" paradigm right at the top - his recommended list of tech stocks lost 44 percent, compared with the Nasdaq's loss of 39 percent. In 2001, so far, Gilder's stocks have lost 33 percent, compared to 16 percent for the Nasdaq.

Far be it from me to criticize George Gilder for losing money in technology investing. I've done my share of that, and more. But George Gilder is a special case. So let me admit that I live in a glass house, and now throw a stone or two.

First, Gilder played the very public role of the Pied Piper of the late great bull market. He used the seductive power of his florid prose to lead investors up the high mountain of technology investing, promising them the kingdoms of earth - and then he marched them right off a cliff. To this day his reports read like epic poems, celebrating the heroic accomplishments of the very technologies and the very companies that have been destroyed by the forces of darkness that he decries in his Journal piece.

Second, Gilder has always wanted to have it both ways. He points out in his reports that he's not really writing about investing, he's writing about technology. But have you ever gotten the junk mail that Gilder's publisher Forbes sends out to promote his report? Touting the fabulous returns earned by Gilder's early picks like Qualcomm and ignoring his more recent craters like Avanex, they brag of a "Gilder effect" and invite potential subscribers to "Grow rich on the coming technology revolution." Or go to Gilder's Web site right now and answer this tantalizing question: "Can you turn $10,000 into $17,708,483?" All this from a man who says it's not about investing.

And third, if the issues Gilder raises in his Journal piece are excuses, then George Gilder of all people should not hide behind them. Long before Gilder morphed into today's preeminent techno-guru, he was a leading conservative/libertarian/supply-sider political economist. His classic 1981 book Wealth and Poverty was one of the intellectual cornerstones of the Reaganonomics revolution. He has known all along, and full well, the hazards of political and regulatory interference with business. He should have seen it coming.

The lesson for George Gilder - and for me, and for you, and for all investors - is that, in investing, there are never any apologies and there are never any excuses. There is nothing but responsibility for outcomes. We are each of us responsible fully for the results we get, for whatever reason we get them. Investing isn't just about understanding technology. Or economics. Or technical analysis. Or any one particular thing. It is about everything and anything that influences risks and returns.

I've often written about the same political and economic issues Gilder raises in his Journal piece. I agree with him almost word for word - he speaks for me. And I know what it's like to be accused of using these issues as excuses - even when my ideas are offered as my best explanations of the way the world works, and my best judgment.

But I know the difference between judgment and excuses. I'm not sure George Gilder really does.

Random Moodswings: Yesterday I wrote about how the 800-pound gorillas of technology use the economies of their vast scale to crush their smaller rivals. It's the law of the jungle, and it always seems to work.

That's the "gorilla game," and there's no place where it is better played than in the semiconductor industry. So why was the market so surprised and perturbed yesterday when Lehman Brothers' influential semiconductor analyst Dan Niles predicted that chip gorilla Intel would drop a "price bomb" on rival Advanced Micro Devices, drastically lowering prices on their new Pentium 4 processors and crushing the price structure of the whole semi industry? Niles - and the market - should know that over the long haul, the semiconductor industry thrives on "price bombs." That's what makes Moore's Law work; how could semiconductor cost-effectiveness double every 18 months if chipmakers weren't constantly slashing prices as they shimmy up the learning curve, hopefully one infinitesimal step ahead of the competition?

Don't worry about this one, folks - the world's appetite for semiconductors is infinite to the extent that it is price-elastic. And that means that as long as Chipzilla can keep delivering on the economies of scale, there's no limit to the amount of wealth they can make by etching submicroscopic pathways in flakes of sand.