From coast to coast, burned tech investors are being soothed. Like aloe on a sunburn, the notion that it wasn’t their fault is just the balm they’vebeen searching for since their nest eggs went splat.
Finally, they can chat openly about their Internet stocks at cocktail parties without being embarrassed. They can admit, that yes, I too bought stock in that dot-com. It’s OK, now. Because, you see, it wasn’t their fault.
They were tricked, it turns out. It was nothing short of black magic,sleight of hand by those sneaky underwriters and their evil assistants, the analysts.
If only that one extra sentence had been in the prospectus, they neverwould have taken that risk. If only they knew which analysts had boughtstock, they would have backed off.
Yeah, right. Of course, we’ll never know exactly what would have happened if all of the pertinent information was available to investors. But we can make some educated guesses.
The lawsuits against various dot-coms and, increasingly, theirunderwriters and the analysts who work for the underwriters, all hinge uponthe notion that information was left out of those prospectuses, the thick,dense documents full of legalese and repetition.
The idea is that by not disclosing that brokerages were agreeing to buy shares at above the IPO price, investors were tricked into going along for the ride.
Now, any such side deals certainly should have been revealed. But even if they were in the prospectus, it wouldn’t have mattered to the average investor.
Think back. It’s not easy, I know, to remember what it was like to be inthe grips of Internet stock fever, but try. People who previously thoughtthe Nasdaq was a South American soccer league were suddenly buying stocks.You couldn’t walk to the corner store without a neighbor, friend orco-worker assaulting you with a stock tip that couldn’t miss.
And many didn’t miss, at least short-term. We all knew someone who hadmade a killing. The urge to believe that there but for a little risk-takingwent us was irresistible.
Remember this, too: It all happened at the speed of light. We were in a new economy, one where stock trades could happen as fast as you could click a mouse. Did anyone really read the prospectus all the way through before buying their stocks?
Maybe some did. But I’d put it at a tiny minority. Yes, these documentsare awful if not impossible to read for the layperson. The prospectus forone company hoping to go public soon, Omnicell, is more than 300 pageslong, including attachments. Since the original prospectus was filed, ahalf-dozen amendments have been added.
Circle of Friends
Keeping up with that is a tall order. And doing it at digital speed isan even taller one. So it’s natural for investors to rely on analysts, to rely onthe buzz.
Natural, but not right. Trust is one thing, but blind trust another. Maybethere was an assumption that all analysts were unbiased and allunderwriters taking a step back after the IPO. But based on what?
Blind faith. And the blindness, of course, came from greed. Dollar signsmade everyone dizzy for a while. Only when our heads stopped spinning didwe look around to see the carnage.
And then, because it’s human nature, because it’s the American way, thesearch for a scapegoat began. Analysts have been — rightly so in manycases — lambasted. Underwriters and dot-com executives have been sued.
It all sounds good on paper. But does anyone really think Drugstore.com(Nasdaq: DSCM), to take a random example, has any money to pay investorsback for their losses?
So the underwriters and investment banks move into the crosshairs. Ifanyone has pockets deep enough to make the pain go away, it’s them.
If it makes investors feel better to lay blame, they are free to do it. It will be a messy process, though, and one that will drag on for years and cost everyone lots of money. And in the end, will there really be any winners?
It’d be a lot easier and faster if we all took a deep breath, accepted ourshare of the responsibility for our stock portfolios, and tried, finally, to move on.
Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.