STOCK IDEAS
David Gardner meets Michael Lewis
By David Gardner
February 5, 2001
Author Michael Lewis is well-known for the sharpness of his wit and pen, which he's put to work in books such as Liar's Poker: Rising Through the Wreckage on Wall Street and The New New Thing: A Silicon Valley Story. David Gardner shared the microphone with Lewis for a Jan. 13 installment of The Motley Fool Radio Show, during which they discussed the market, companies, and fair disclosure.
David: Michael, great to have you back on the show. You were last on The Motley Fool Radio Show in early April of 2000. I don't know if you remember that, but the Nasdaq was around 4500 and, since April, the Nasdaq has lost nearly half its value. What's your take on what's happened with the Nasdaq?
Lewis: First off, did I say "buy" in April of 2000? Because if I did...
David: We'll have to go check the tape.
Lewis: Well, look: The rules have changed, obviously. That we all know. All of a sudden, ideas don't matter any more, profits do. It's extraordinary what's going on in the market. To me, what's so wonderful is to see how quickly what was the most fashionable line of work -- you know, working in a dot-com -- has become the least fashionable. You can't find anybody who claims to have thought it was a good idea.
When that happens, it seems to me, just on the face of it, that it's all overdone in the other direction -- that the skepticism or pessimism now is the mirror image of the optimism before, and that somewhere in between makes sense. And, that this might not be a bad time for someone with capital to go look around for some dot-coms to buy.
David: Certainly, given that I hold a few of them myself and have all the way through, I'm inclined to agree. Michael, most of the Nasdaq decline happened after you were on our show, so with that in mind, how much blame does Michael Lewis deserve?
Lewis: Well, I'm perplexed by the question. I'm very good at avoiding responsibility for anything, and I can certainly shirk responsibility for this. But, to the extent that I generated any sort of enthusiasm for this by publishing a book on the subject, I guess I share a little bit of the blame.
David: Oh, we're all to blame. We want to run some company names by you and hear your one-line take on their future or their present, if you like. The first one I want to try out is AOL Time Warner (NYSE: AOL).
Lewis: I always thought it was a mistake for AOL to get involved with Time Warner, because here you had this really sexy, interesting, high-growth company that the market loved -- and, I believe, would have continued to love even through this big sell-off -- and it goes and joins forces with stodgy, old, poor-performing Time Warner. All this talk about synergy never makes any sense when you look at it really closely. All of the things that AOL could get from Time Warner, it could just as easily rent. It doesn't need to own it.
And, by owning it -- like, for example, the cable distribution channel -- it puts the company in direct competition with people it wants to do business with. I think AOL should've never gotten involved with Time Warner, but it's too late for that, so it makes it, at least in my mind, a much less attractive stock. And, I bet that five years from now, 10 years from now, investment bankers are going to make a fortune splitting it all up.
David: Maybe even sooner. As a shareholder, I think I'd like to see us jettison some of those "new assets," as they're referred to. Michael, next up, how about Microsoft (Nasdaq: MSFT)? There's a story... that Kenneth Starr will be working to uphold the court-ordered breakup and will be representing a group of Microsoft rivals that includes AOL, Sun Microsystems (Nasdaq: SUNW), and Oracle (Nasdaq: ORCL). Your take?
Lewis: If that's true, what a cataclysmic error of misjudgment in public relations. Why on earth would you want to get mixed up with Kenneth Starr if you're Sun, Oracle, and the rest? I mean, there's no point. There are plenty of people who could've done the same job.
David: Well, it got me talking about it.
Lewis: That's true, it got you talking about it, but in terms of derision. Look, I've been kind of phlegmatic on this subject. When I was in that courtroom watching the Microsoft hearings, I came to exactly the same conclusion as Judge [Thomas Penfield] Jackson. Microsoft is clearly a monopoly, and was clearly suppressing innovation. It seemed to me to be good for the world that Microsoft be obliterated. Microsoft was dishonest, to boot.
Now, it's very funny. I find myself, over the last 18 months or so, having experienced a slight shift of sentiment and almost feeling a little sorry for Microsoft. It is clear that the case it was making -- that this world moves too fast for anybody to have complete control of it -- is looking increasingly true and Microsoft is looking less powerful than it did before. I find myself waffling in my determination that this thing should be broken up.
It's a big deal that, all of a sudden, we have a president who thinks the case has no merit, and I will be very interested to see how the Justice Department proceeds. Also, it's a big deal that the Court of Appeals doesn't seem to have much interest in it and that the original judge, Judge Jackson, has more or less discredited himself by the things he said in the newspapers. So, I say it's all looking very good for Microsoft. I say it's increasingly unlikely that Microsoft is actually going to get broken up. But, apart from that, it's got big business problems to solve.
David: OK, how about Yahoo! (Nasdaq: YHOO)? Yahoo! lowered earnings expectations because of declining advertising this week. Do you think Yahoo! has staying power?
Lewis: I'd say an equivocal yes, but it depends on what happens with Microsoft. I could see a situation where Microsoft, through its power with the Internet browser, is able to create a portal that rivals Yahoo! If that happens, then it's not so good for Yahoo!
Yahoo! should be applauded for even having profits, right? I mean, it's not supposed to, and yet it somehow managed to emerge in April of 2000 as one of the few new-economy companies actually making a profit.
David: $100 million plus.
Lewis: That's very good, and it's obviously susceptible to recession and not to be blamed for that. It's an admirably well-run company.
David: Michael, in The New New Thing, you write about the Silicon Valley culture as you tell the story of Netscape founder Jim Clark. Since the book came out in 1999, there's obviously been a dramatic change in the Internet climate. We've all watched it together -- a number of companies going out of business. A lot of venture capital money is drying up. With that in mind, what do you think of The New New Thing these days?
Lewis: Well, I think it's unclear right now. You make a fair point that venture capital is not what it was a year ago, but I think it's a mistake to think that these movements in the stock market represent something fundamental. What's fundamental is underneath the stock market, and these great historical trends at work that really haven't changed all that much, even in the wake of the stock market collapse. One of them is the venture capital industry.
Yes, there's less venture capital now than there was maybe a year ago, but there's 20 times, 30 times more venture capital than there was 10 years ago. There are many more funding resources generally available and more momentum behind technological innovation than there's ever been, and this has got a momentum all its own. No doubt, when the stock market recovers from the flu it's caught, we're going to see some successor to the Internet jump in and have a good run.
David: So, it'll be just like all those times in the past when the market has come roaring back again. We had SEC Chairman Arthur Levitt on the show in the fall and he talked about the SEC's passage of the fair disclosure rule, which requires companies to disseminate information to analysts and the public at the same time. Obviously we're huge fans of it. You've written in the past that selective disclosure was the financial scandal of the '90s. Do you think the passage of the fair disclosure rule is significant?
Lewis: It's a huge deal. Among other things, it means, I think, the end of Wall Street analysis as we know it, because now it's not even a level playing field. Now people like you have an advantage over Wall Street analysts because you don't have the conflict of interest that they do. The Wall Street analysts are still stuck with this relationship with the corporations they supposedly analyze objectively that they have to navigate. Commentators and the media, who were just as smart about the market, have the same information at the same time. There's no reason not to listen to them rather than the Wall Street analysts. This is a big deal.
Where Next?
International Investing / United States discussion board
