Nobody’s Fool Takes Stock in the Web
The sun glowed soft and round off the western horizon of Universal City at the close of day. The air felt tangibly rich and warm.
In the outdoor parking lot of the hilltop Sheraton, bathed in this fading golden light, a pack of young professionals, radiant with power, slammed the doors of their BMWs and strode confidently toward a first-floor ballroom.
The speaker tonight: Louis Navellier. King of the quantitative analysts. Master of modern portfolio theory. A peerless stock picker from Nevada who divines market moves by swirling a cocktail of three parts computer analysis, two parts psychology and one part sorcery.
I had talked my boss into letting me cover this event by suggesting that interviews with individual investors at the seminar would yield insights into our readers’ financial hopes and dreams. I promised a compelling yarn about Encino yuppies pouring their money into stocks in record volume to ward off fears of ending their days eating cat food in a trailer in Appalachia.
After years of a rising stock market coupled with forecasts of doom for Social Security and the old-fashioned company pension, there has been a rush to invest. A mind-boggling $99 billion poured into American equity mutual funds from January to April alone; the previous record for a full year was $128 billion in 1995.
But the truth is that I wanted to hear Navellier myself. For I had secretly become one of them. An investor. A chartist. An evangelist. A Fool.
A winding path through the shoals of suburban angst and high-tech revenge had brought me to this night. It began, as do so many journeys of high finance, at the breakfast table.
The first step was taken when I was a kid in Tarzana. My dad read the Business section of The Times first thing every morning with his plate of eggs and toast, and I remember his fierce exclamations about the ruin of his investment in a company called Fairchild.
Fairchild was the first great American semiconductor manufacturer. Many of the most brilliant inventors and Silicon Valley moguls of our time started there, then went on to found the personal computer industry. Two young Fairchild scientists named Gordon Moore and Robert Noyce, as an example, founded chip-making powerhouse Intel Corp.
Back then, individuals exercised little control over their investments in stocks. They depended on brokers and golf buddies for tips, then paid exorbitant fees to large firms like Merrill Lynch to make trades. Account information came in the mail every three months. Price quotes came once a day in the newspaper.
My dad eventually grew weary of his powerlessness in the stock market and gave it up after repeatedly losing money. Fairchild, darling of the first round of the Information Age, fell on such hard times that it was eventually sold to oil-services giant Schlumberger before disappearing altogether in the maw of a rival, National Semiconductor.
I shared my father’s distrust of the market and paid scant attention to stocks for decades.
Then, however, I had a son of my own. His North Hollywood preschool costs more per year than my parents spent to send me to Duke. Then we were blessed with a daughter. She seems smart enough to go to preschool one day, too.
This is not exactly a blinding insight, but it finally dawned on me that a bank savings account and occasional Lotto purchases were not going to make it as a family financial strategy anymore.
I started gingerly with a few Fidelity mutual funds and began reading the personal finance magazines. Then I subscribed to a newsletter and began borrowing other people’s newsletters. Soon I had graduated to the hard stuff: The CNBC “Money Wheel” on cable before work.
Before I knew it, I had been seduced by the siren call of the market. There would be no cure. I now had to mainline information. And that could only lead one place: the Internet.
The global network of a gazillion computers and telephone switches known as the World Wide Web has brought Wall Street to my desk at home. This is a wonderful and dangerous thing.
The wonderful part is that the little guy can tap directly into the tidal wave of data that roars forth from companies, researchers, magazines, brokerages and fellow investors without the often-dubious contributions of a high-paid interpreter. The peril is that said little guy can get swept away by hype, false claims, rumor and blind faith.
That’s where the Fool comes in.
For more than a year, once my angels have gone to sleep, dreaming of trucks and Popsicles, I have perched just yards away bathed in the glow of a PC monitor. My dreams, though, center on sending them to college by investing in companies that make fibre-channel switches, Post-It notes, field-programmable gate arrays and monoclonal antibodies.
An electronic newsletter and network of bulletin boards with the unlikely name Motley Fool gave me the initial jolt of confidence. A section of America Online, its editors preach a profoundly conservative approach to investing with a high-octane twist. Their formula, squeezed into a sound bite: Forget about mutual funds, since most fail to do better than the market averages. Instead, put half your portfolio into the four lowest-priced but highest-yielding stocks of the Dow Jones industrial average and do solid research before putting the other half into small companies with good profit histories and great growth potential.
Their portfolio of 10 stocks is up something like 90% this year alone due in part to timely positions in America Online, disk-drive maker Iomega and rebounding retailer Sears. The operators of the service, who call themselves Fools, are now being accused by the mavens of Wall Street (whom Fools sarcastically call the Wise) of manipulating stocks and offering small investors false hopes.
The online world of Fools and the button-down world of Navellier merged that afternoon in Universal City, when I met a silky Bear Stearns broker in the parking lot.
Within minutes, she offered me a stock tip that she admitted she’d gleaned from a Fool.
We sat down in the cavernous ballroom and listened in silence to Navellier’s rap. Investors, like a podiatrist from Beverly Hills, raised their hands to ask questions. Navellier, who manages more than $1 billion in private accounts and mutual funds--up more than 35% so far this year--answered them politely.
His presentation was long on professionalism but short on encouragement for the do-it-yourselfers. Where the Fools spur investors to think for themselves and provide a forum for vigorous debate among 250,000 partisans, Navellier offered the one-way solution of the past: “Trust me.”
That night I went home, kissed the kids goodnight and prowled the Web to check out the recommendations I’d gleaned. First the Fool. Then Silicon Investor for its highly technical message boards and charts. Then Marketguide and Marketedge for balance sheet data and growth estimates. Then the Wall Street Journal Interactive Edition’s Briefing Books for recent news and more charts. Then a search of all documents anywhere in the world mentioning the names of the specified firms.
I took a crash course in offshore petroleum drilling, fiber-optic networks, gigabit intranets, wireless cable modems, MMDS, LMDS, ADSL and HDSL. (Don’t ask.)
Around 2 a.m., I placed a single trade online and went to sleep.
That was two weeks ago. On Wednesday, after more research, I sold after scoring a double--a 100% gain.
Perhaps it was luck. I’d prefer to think I took advantage of the increasing efficiency of the spread of information as the power of market Mandarins dissolves and hometowns like Studio City become virtual financial centers.
In an interview, Navellier frowned on my choice, calling it “a bit bizarre.” My dad would laugh.
But now, at least, I can send the kids to Harvard for a few weeks.
Or preschool for a few months.