Commentary : Open Book
Has Gilder Lost His Golden Touch?
By Don Luskin
Special to

Originally posted at 8:00 AM ET 9/25/00 on

Wall Street's most influential technology stock analyst isn't a technology stock analyst, and he doesn't work on Wall Street. He's George Gilder, the iconoclastic futurist who publishes the Gilder Technology Report and organizes the annual Gilder-Forbes Telecosm Conference.

As any reader of undoubtedly already knows, Gilder is the prophet of the telecommunications revolution: the complex of new fiber, wireless, photonic and silicon technologies that make up what he calls the telecosm. He made his reputation with early recommendations of little-known companies that have since grown into megacap tech stalwarts. Way back in 1997, he picked Qualcomm (QCOM:Nasdaq - news) -- at a split-adjusted price of $4.75 -- before anyone had ever heard of CDMA.

He sang the praises of JDS Uniphase (JDSU:Nasdaq - news) -- at a split-adjusted price of $3.63 -- before anyone had ever heard of Bragg ratings, erbium-doped fiber amplifiers or pump lasers. Today Qualcomm trades in the $70s and JDS Uniphase trades over $100.

This record of wins has created the Gilder effect. When Gilder adds a new company to the Telecosm Technology Table on the back page of his monthly newsletter, every telephone on Wall Street and every message board on the Web lights up with the news within minutes of the announcement -- and the new stock typically jumps 20% or more within minutes.

The same thing happens when Gilder mentions a company favorably on the message boards of his own Web site or from the podium at his Telecosm Conference. Last week, my partner Dave Nadig attended Telecosm and phoned in real-time reports whenever Gilder pounded the table (and I faithfully reported them to you, via the Columnist Conversation feature on

In three or four days, telecosmic buzz drove Network Appliance (NTAP:Nasdaq - news) from $115 to $140, and Qualcomm from $66 to $75.

Every bull market produces a trademark guru, and for our bull market it is George Gilder. And now his long-awaited book Telecosm is out, so you can be sure that the Gilder hype is only going to get louder. But is all the excitement about Gilder justified?

It's easy to point to a few spectacular examples and to marvel at Gilder's ability to move markets. But the more relevant issue for investors is: Over the long term, can you really make money by investing in Gilder's vision?


Litmus Test

One of the best ways to assess Gilder's investment performance is to visit the Gilder Technology Index Web site. The GTI site is the creation of Dick Sears, the retired CEO of Kwasha Lipton, the well-respected actuarial firm.

Sears has lovingly reconstructed the investment performance of all Gilder's stock picks, reaching all the way back to the beginning of the Gilder Technology Report. Gilder's stocks are combined into what Sears has dubbed the Gilder Technology Index, an equal-weighted portfolio that is rebalanced every day -- and that closely mimics Sears' own actual investment portfolio.

Sears takes care to filter out the effects of Gilder's ability to move the market in the construction of the GTI. When Gilder announces a new stock, Sears adds it to the index at a market price prevailing after the announcement, post Gilder effect. So these spectacular returns are the result of Gilder's insight, not his influence.

The results are truly impressive. As the table below from Sears' site shows, Gilder got off to a slow start in 1997. But in every year after that, he's trounced the Nasdaq Composite and the S&P 500. From inception, the GTI has returned on average an astonishing 72% a year.

Gilder Outdoes the Market ...
His picks have handily beaten the indices.
Time period Gilder Technology Index Nasdaq Composite S&P 500
1997 21% 22% 31%
1998 48% 40% 27%
1999 284% 86% 20%
2000 8% -6% -1%
Cumulative (since inception in 1997) 649% 197% 96%
Annualized (since inception in 1997) 72% 34% 20%
Last 12 months 89% 39% 13%
Source: Gilder Technology Index, as of 9/21/00

If you wanted to be picky, you could point out that the bulk of the GTI's returns came in a single year: 1999. And so far, 2000 is shaping up to be Gilder's worst year. According to my research, the stocks that Gilder has picked so far this year have been a mixed bag at best.

... But He's Having a Mixed Year in 2000
The Gilder Technology Letter's picks for this year
have proven hit-or-miss.
Stock Date added Stock return Nasdaq Composite (XLA:Amex - news) Feb. 29 -77% -18%
Motorola (MOT:NYSE - news) March 10 -45% -24%
Avanex (AVNX:Nasdaq - news) April 24 55% 10%
Agilent Technologies (A:NYSE - news) May 12 -47% 8%
Procom Technology (PRCM:Nasdaq - news) June 21 -50% -6%
StorageNetworks (STOR:Nasdaq - news) June 30 7% -3%
Wireless Facilities (WFII:Nasdaq - news) Aug. 23 -22% -5%
LanOptics (LNOP:Nasdaq - news) Sep. 7 8% -7%
Source:, as of 9/21/00

It's hard to get upset about these calls for at least one reason: Gilder refuses to admit that he's in the stock-picking business to begin with. Instead, he asserts, he simply looks at technologies.

His latest pick, LanOptics (LNOP:Nasdaq - news), is a case in point. Gilder says he picked it because it owns most of another company called EZchip -- a leader in the emerging network processor field -- but he admitted that the parent company is foundering. Gilder doesn't look at prices, announces no targets and, as recently as last year, sat with me on a Sunday afternoon in front of a roaring fire vehemently denying his prowess as an investor.


A Temporary Dip?

But stock picker or not, none of this worries Dick Sears. He told me, "George's vision puts him way ahead of the herd. It's sort of a given that it takes years for his selections to bear fruit, Qualcomm being a prime example. His 1997 and 1998 performance was just so-so, but in 1999 the market caught up with him in a number of cases. That may not happen again until 2001 or later, but in the meantime it doesn't mean he's lost his touch."

Some impressive evidence in support of Sears' conviction is the performance of the stocks selected by Gilder's new newsletter, the Huber Mills Digital Power Report. Focusing on what he calls the "powercosm" -- new technologies for pure, reliable electricity for the power-hungry New Economy -- Gilder's new paradigm has selected a crop of companies that are way off the radars of most investors: For example IXYS (SYXI:Nasdaq - news), Capstone Turbine (CPST:Nasdaq - news) and Power-One (PWER:Nasdaq - news).

Sears has created an index for these stocks, too: The Digital Power Index, or DPI. Just since its inception April 14, the DPI is up an astonishing 261%, compared with 16% for the Gilder Technology Index, 15% for the Nasdaq, and 7% for the S&P 500.

So it looks like Gilder has not lost his touch: In the powercosm, he's on to a whole new market-beating technology paradigm. As Sears puts it, "George is great at thinking through what will have to come next."

Don Luskin is President and CEO of, and a portfolio manager of OpenFund. At time of publication, OpenFund was long Network Appliance, Qualcomm and IXYS Corp., although holdings can change at any time. Luskin appreciates your feedback and invites you to send it to Don Luskin.