| Subject: Dumb Deals 101 |
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Date Posted: 21:36:23 09/04/01 Tue
For those dweebs who wish to whine and snivel about losing in "HYIP," it would have been so much nicer for all of us if you had lost it over in the market, instead. Then some other group could endure your pissing and moaning.
For your edification:
Dumb Deals 101
Attention, class. Smart people can make really stupid mistakes. Here’s a primer on some of the biggest investment fiascoes of recent years
By Allan Sloan
NEWSWEEK
Sept. 10 issue — It’s the season that parents love and children hate—back-to-school time. First assignment: studying one of the biggest investment lessons we’re likely to see for a generation.
TO WIT, when investment madness grips the world, big, smart investors can succumb just like us not-so-big, not-so-smart types. The difference is that the big guys have lots more money to lose, and if they make big enough investments, they leave paper trails for all to see. Average people who bought dogs like ICG, Webvan and Teligent at their highs can weep in private. But big hitters like John Malone, Goldman Sachs or leveraged-buyout heavies Ted Forstmann and Tom Hicks operate on the public stage. And they can lose bets that are measured in the billions.
Unlike Internet companies, most of which never had a credible plan to make money, the telecom start-ups generally had proven leaders, real assets and business plans that made a lot of sense.
You might think the biggest smart-money bets were lost from imploding stocks of well-known Internet companies like Priceline, Yahoo and Amazon. Not so. Most of the money was lost in telecommunications companies that were formed to provide spiffy “broadband” Internet-video-voice-data stuff. Unlike Internet companies, most of which never had a credible plan to make money, the telecom start-ups generally had proven leaders, real assets and business plans that made a lot of sense. But so many companies flooded in that they slaughtered each other.
How could so many smart investors have been so foolish? What were they thinking? Martin Fridson, the chief junk-bond strategist for Merrill Lynch, says that already-hot Internet and telecom markets turned incandescent when money came flooding into the United States after the Asian financial meltdown started in 1997. “Ideas that you would have called ridiculous at other times got funded,” he says. Another major factor in “smart” money’s flooding into telecom start-ups was that the nation’s biggest telecom, AT&T, bought upstart Teleport, and No. 2 WorldCom bought MFS and Brooks Fiber, all at fancy prices. This encouraged others to rush out and start up telecoms that could then be sold quickly to hairy-chested, deep-pocketed phone companies that, it turned out, weren’t buying. So, you see, it wasn’t just callow twentysomething supposed geniuses who lost big time on the Internet-telecom bubble, but seasoned smart people, too.
There are enough examples here for a whole M.B.A. course. Call it Dumb Deals 101. So we’ve composed a list based on an unscientific combination of big names who made big investments that went bad embarrassingly quickly—and unwittingly provided us all a broader business lesson. We’re not counting people like Amazon’s Jeff Bezos or Priceline’s Jay Walker, who lost paper fortunes, money they never really had. As you can imagine, our dealmakers were less than eager to talk on the record, so these case studies are based on public filings and background interviews. The current value, if any, of their investments is our estimate based on recent stock prices. And let’s be generous—some of these companies are indeed going to survive. But make no mistake. It will take a miracle for our investors to come out ahead. And now, for our list of lessons that these investors learned the hard way. And, by the way, should have known in the first place.
[Lessons omitted]
There are enough examples here for a whole M.B.A. course. Call it Dumb Deals 101. So we’ve composed a list based on an unscientific combination of big names who made big investments that went bad embarrassingly quickly—and unwittingly provided us all a broader business lesson. We’re not counting people like Amazon’s Jeff Bezos or Priceline’s Jay Walker, who lost paper fortunes, money they never really had. As you can imagine, our dealmakers were less than eager to talk on the record, so these case studies are based on public filings and background interviews. The current value, if any, of their investments is our estimate based on recent stock prices. And let’s be generous—some of these companies are indeed going to survive. But make no mistake. It will take a miracle for our investors to come out ahead.
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