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George Gilder: So THAT explains it

Posted By Barry Ritholtz On May 9, 2006 @ 7:15 am In Data Analysis,Investing,Psychology,Science,Technology,Trading | Comments Disabled

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 [1] 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 [1]: 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 na├»ve 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."

Where Are They Now: George Gilder [1]
WSJ, May 8, 2006

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URL to article: http://www.ritholtz.com/blog/2006/05/george-gilder-so-that-explains-it/

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[1] WSJ: http://online.wsj.com/article/SB114433479738318882.html

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