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George Gilder: So THAT explains it

The Gilder effect, as it was known in the late 1990s, was what would happen when George Gilder's newsletter would recommend a stock, sending its share price surging to absurd levels. By absurd, I mean even relative to those heady dot com, bull market days.

By the late 1999/early 2000, we used to reliably fade (Short) Gilder picks after the first or second wave. It had to be done by scaling, cause you never knew how high these absurdities would run. But they eventually came crashing back down to earth. Many of them subsequently went bankrupt.

The key tell that his newsletter was a house of cards was that even Gilder himself would note that "He doesn't do price." When you consider how utterly absurd that is for an investment newsletter, you can understand how totally out of hand things can get.

Gilder's subscribers got utterly devastated in the crash: At one time, over 75,000 subscribers paid him good money for his picks; Today, fewer than 5,000 people subscribe (still a respectable number). Quote GG:  "The trouble with my business is that everyone came in at the peak. The typical Gilder subscriber lost all his money and that made it very hard for me to market the newsletter." Gilder's saving grace was he ate his own cooking, investing right along side his readers. The WSJ reports  he "was as close to bankruptcy as you can get without filing."

I never liked Gilder's approach or his "priceless picks," and I just found out why: He is a rigid idealogue. That's a guaranteed recipe for stock market disaster.

How idealogically rigid is GIlder? Consider:

-He is a zealous advocate of "intelligent design;"
-He believes evolution is a myth;
-He helped found the Discovery Institute;
-He was an early proponent of supply-side economics;
-He was outspoken critic of women's rights in the 1970s;
-He was a former Nixon speechwriter.

Even Gilder himself admitted "I did not put the companies through a rigorous financial test or filter. It was a real disaster. I was a naïve guy doing this. It almost didn't matter what the hell I did when all the companies went bankrupt, there is no way to look good."

No shit. That's got to be the understatement of the year. Additionally, it is horrifically irresponsible.

But understand my takeaway from all this; It isn't about politics -- its about being intellectually flexible and being able to adjust your thinking on the fly. Gilder is the poster boy for the opposite of that. Is it any surprise his  readers and investors got demolished? They got suckered in at the top by someone who was unqualified to give financial advice.

What's even more astounding is that there are still 5,000 people who continue to pay him for his "insights."

Source:
Where Are They Now: George Gilder
MARCELO PRINCE
WSJ, May 8, 2006
http://online.wsj.com/article/SB114433479738318882.html

Tuesday, May 09, 2006 | 07:15 AM | Permalink | Comments (49) | TrackBack (2)
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Comments

Great post...At my work place we had a few 'Gilder' followers and they would be saying - Made 100 percent this year and got rich fast YET they are all still working as my conclusion was retained wealth is the key. These are same people working the bubble sphere on real estate this year or perhaps shrimp farming next year.

I read the WSJ piece and it reinforces with me 'protect thyself' and get the facts, use data and analysis and understand for yourself prior to investing. Also, if the return and promise is too good to be true, then it is.

Posted by: John | May 9, 2006 8:00:45 AM

in 1987 in a high school on 91st an class was given a gilder book to laugh at. it was advocating supply side whatever.

it surprises me that anyone would answer his phone calls.

Posted by: tired | May 9, 2006 9:03:18 AM

I don't know the first thing about this fellow. I enjoy your blog, but am rather nonplussed at your vitreol and apparent illogic on this one.

He is a rigid idealogue. That's a guaranteed recipe for stock market disaster.

While I see the wisdom in this statement as it relates to market theory and decisions, I don't see how the points you listed directly apply. By your logic, anyone here who has an opinion on anything is a rigid ideologue, indeed by sneering at Gilder's beliefs in politics and science, you rather seem to come off as one.

Also, don't be mislead by the pervasive misconception that intelligent design is in opposition to evolution. That is simply false. It rather questions the "scientific" expression of rigid materialist ideology in the assumption of abiogenesis and that everything with the appearance of design was, in fact, not designed. Plenty of intelligent designs proponents are evolutionists.

Posted by: JRL | May 9, 2006 9:10:40 AM

Michael Murphy is about as bad. He had his subscribers buying the tech crash all the way down.

Posted by: jim | May 9, 2006 9:28:52 AM

I bought HANS Friday afternoon. I am happy this morning.

Posted by: John Navin | May 9, 2006 9:31:23 AM

GRL:

One of the great things about Science is its willingness to throw away any thesis which gets subsequently disproven.

Idealogues start with their belief system, then ignore reality. It often leads to trouble.

My "vitriol" as you described it was due to watching people get financially ruined by this charlatan. Admittedly due to their own greed -- but you still can't help but be frustrated by the whole sordid process . . .

Posted by: Barry Ritholtz | May 9, 2006 9:32:21 AM

"It rather questions the "scientific" expression of rigid materialist ideology in the assumption of abiogenesis"

You mean like the "scientific" method of how we know an airplane flies, or why clouds form? Oh shit, perhaps those were "designed".

ID does not deserve to be used in the same sentence as "science". It has no theories, it offers no predictions, it offers no instances of improvement, has no supporting evidence, or offers ways to disprove it. The theory of evolution has all these things, and has stood the test of time and the scientific method. ID is not science, it is philosophy, and should be taught in a philosophy class.

Posted by: Frank Rizzo | May 9, 2006 9:36:03 AM

Ok Barry,

When is the pay site coming out with actionable signals? We get it: Gilder is Bad. Barry is Good.

Can we keep it under $30 a month ;-) ?

-Hey Jerky

Posted by: Hey Jerky | May 9, 2006 9:41:45 AM

Sounds like George ought to loosen up and do some gasoline huffing with me. A nostalgic trip. After the buzz wears off we can shag some minx.

Posted by: A | May 9, 2006 10:00:46 AM

"Sounds like George ought to loosen up and do some gasoline huffing with me. "

Speaking of huffing, who was it on this board that had the long description of a huffing session a couple days ago - complete with details of the auditory effects they experienced (looped and echoed voices, etc)? To me, that sounds like the beginning (prodromal symptoms) of a temporal lobe seizure, though IANAD. Freaky stuff.

Posted by: Frank Rizzo | May 9, 2006 10:18:10 AM

Boo-yaa!

Posted by: toddZ | May 9, 2006 10:25:29 AM

By the late 1999/early 2000, we used to reliably fade (Short) Gilder picks after the first or second wave. It had to be done by scaling, cause you never knew how high these absurdities would run. But they eventually came crashing back down to earth.

Does this mean you are reliably fading the Cramer picks in 2006?

Posted by: Andrew Schmitt | May 9, 2006 10:26:46 AM

Hey, I believe in evolution. Most Wall Street types are rats. Lots of women are dogs. Our leadership is full of jackasses. Alot of men are snakes. And on and on and on.

The question I really have isn't evolution, it's that Darwin's theory doesn't seem to apply to the building blocks of life. ie, Why would this cocktail soup of basic building blocks merge to create something new if it was survival of the fittest? The reality is there is no alternative view to evolution based on science. That said, there are a few holes big enough to drive a Mack truck through that need to be filled in. Maybe they'll be filled in and maybe they won't. I think those holes are what causes people to question "how or why", not that it didn't happen.

There is a good book that blasts Darwinian theory written by a secularist. ie, It is not an intelligent design babblefest by people attempting to save their religion from science. In case you can't read this link it is:

Darwinian Fairytales : Selfish Genes, Errors of Heredity and Other Fables of Evolution

Written by David Stone

http://www.amazon.com/gp/product/1594031401/ref=ord_cart_shr/104-0652630-
1859931?%5Fencoding=UTF8&m=ATVPDKIKX0DER&v=glance&n=283155

Posted by: B | May 9, 2006 10:30:10 AM

Now I've always thought Gilder an ass because he clearly understands little about technology but has some kind of charisma that even allowed those very technical folks he sometimes worked with to ignore his blatant lack of understanding.

Example: Build infinite amounts of fiber, Gilder shrieked! And companies did. Go figure. Becauase they didn't understand, as anyone reading the trade coverage of fiber did (not even the technical IEEE papers, etc.), that fiber bandwidth was barely tapped in the mid-90s. Look at the amount of Gbps you can pass over a single strand today! And that's still not the top by what sounds like at least an order of magnitude.

I blame Gilder, in part, for the fiber-mania that tore up streets and caused massive losses.

The one interesting part of the WSJ profile: if you stuck with him from start to finish, you got a pretty good return over 10 years: $10,000 in 1997 became $30,000+ in 2006. And that's after droping below $10,000 in 2002. What it says is that dollar-cost averaging would have produced a remarkably good return over 10 years based on his recommendations. That baffles me.

Posted by: Glenn Fleishman | May 9, 2006 10:44:30 AM

Barry
Can you make it three-in-a-row? The last two posts, i.e., Gilder and Dell, were dynamite.
regards,
Tim

Posted by: Tim | May 9, 2006 10:56:11 AM

Barry - have you considered that the 5,000 subs left are those who made money (and are still making money) on Gilder by shorting his picks?

Posted by: fatbear | May 9, 2006 11:07:15 AM

...and don't let yourself get lured into a religious debate. Your comment established your position with full clarity. We can always go back to Stephen Jay Gould to get our evolution straight.

Posted by: jcf | May 9, 2006 11:12:53 AM

Like any half ass broker knows, give the client one winner and Mr client will give you 10 losers, Gilder gave us all QCOM in a Forbes article and a few years later the rocket launched. All of us half ass brokers became masters of the universe and surely with such powers we could not have evolved into such a state of being!

Posted by: McSwiggen | May 9, 2006 11:16:09 AM

B,

Este, mi amigo, esta donde pieza maneras.

David Stone's book is sophistry of the rankest order. We would not expect a history professor to give us a detailed critique of Plate Tectonic Theory, yet nearly anyone with a postgraduate degree has free range to take pot shots at evolution. Mr. Stone may have known a great deal about Hume and Kant, but from browsing his book, one questions whether he had even a cursory knowledge of terms such as adenine and speciation.

The wealth and fame that would go with disproving any pillar of evolution would be mind blowing. Not to mention that evolution would be phenomenally easy to disprove. Unfortunately for its critics, evolutionary theory grows more robust with each passing day. Mr. Stone's book does nothing to change this.

Posted by: Bynocerus | May 9, 2006 11:16:36 AM

I said it was a good book. I didn't say he was a geophysicist. Read the book and have an open mind. Then judge.

Btw, philosophy is not to be discounted. Some of the greatest minds in history were philosophers. There is much in this life that cannot be described by a mathematical equation. That includes why evolution took place. (although I would prefer everything to be described by mathematical equations, that to be the case and it appears that is also your argument to discount his writings.) While much of evolution is very logical, it is not the "logicalness" of it that is intriguing. It is the "illogicalness".

ie, You think too much like Spock! lol. You must be a Trekkie.

Posted by: B | May 9, 2006 11:34:28 AM

B,

I've been a fan of your writing on this blog (most of your posts at least), but I must set you straight on the issue of evolution, which unlike stocks, I know more than a little about.

"Survival of the Fittest" is an unfortunate misnomer, mainstream life scientists don't ascribe to this belief, we believe "Survival of the most adaptable" to be more appropriate.

Think of evolution as variations in the genome (resulting from mutations etc.) that are selected for depending on environmental conditions. Every organism from an e. coli residing in your gut, to even you B, harbors "mutations" in their DNA, and in certain condition will confer it survival advantage. Example: "superbugs" that have become antibiotic resistant.

Posted by: Noname | May 9, 2006 11:55:27 AM

In a very technical sense, evolution is a myth. A myth is a story that has at some point been claimed to be true that explains why some aspect of the world is the way that it is. But if you use this technical definition of a myth, then claiming something is a myth is not a claim that it isn't true. Most people that claim evolution is a myth are using the common definition, which does imply that the myth is not true.

That said, there are problems with the theory of evolution. It is currently the best explanation of how life came to be if you assume that there were no gods involved. As such, atheists believe it to be true and don't worry about the problems (which will probably be fixed some day anyway). If you believe in gods already, there is no logical way to pick between creation and evolution, so you can pick whichever one you are more comfortable with without being an idealogue.

The creation/evolution debate is more of a religious debate than a scientific one. The fundamentalists think that creation is good proof that God must exist, so they hate evolution for providing the possibility of a universe with no gods. The atheists will take anything that allows them to justify not believing in gods, and they mostly don't learn enough biology to even understand whether there are problems with evolution or not. The biologists can't try to explain how creation works, so they work on explaining how evolution works, because that is a process that either can eventually be explained through science or will eventually be proven wrong by science (in which case a new theory will replace it).

My limited understanding of biology and evolution says that speciation doesn't work. In particular, 2 animals with a different number of chromosomes can't breed (the only exceptions to this produce infertile offspring). This produces a prediction that all mammals (and actually more than mammals) should have the same number of chromosomes. This is clearly false, so either my understanding of evolution is wrong or evolution itself has a serious problem that needs to be addressed. I'm religious enough to accept creation as a viable theory until biology provides an explanation for everything that I find plausible. I expect that to happen someday, though it may not be until after I die. Until then, I will continue to consider people who have strong feelings on either side of the creation/evolution debate to be idealogues.

None of this has anything to do with how well someone can pick stocks or time the market. It sounds like the way to make money off of Gilder would have been to buy immediately, close the position once it went up n%, and then short it once it had peaked enough (this probably won't work anymore). It also sounds like his ability to pick stocks couldn't be measured because the action of him picking a stock moved the price too much to tell whether he was ever making good calls or not.

Posted by: jkw | May 9, 2006 12:03:16 PM

sorry, I didn't mean to diss our host. Barry, you rock man, love the site.

Posted by: noname | May 9, 2006 12:05:23 PM

My hunch is that there is plenty more to what is really going on than what is 'proven' by mainstream science today.

I suspect that in 100 years folks will look back and say, "Whoa, they belived *that*?" Let's ask Galileo what he thinks.

I also suspect that our individual and collective beliefs (a fancy way of saying our thoughts) create physical reality.

Posted by: Get Long Vega | May 9, 2006 12:19:39 PM

"Darwin's theory doesn't seem to apply to the building blocks of life. ie, Why would this cocktail soup of basic building blocks merge to create something new if it was survival of the fittest?"

Check out the work of Stuart Kauffman on autocatalytic sets. Or just buy 'Complexity' by Mitchell Waldrop. Can't recommend it highly enough.

Posted by: trader75 | May 9, 2006 12:21:53 PM

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