Denby's 'Sucker': into the market, madly

January 18, 2004|By Eileen Ambrose | Eileen Ambrose,Sun Staff

American Sucker, by David Denby. Little, Brown and Company. 328 pages. $24.95.

The stock market just posted year-end returns reminiscent of the late 1990s, when analysts were rock stars, cabbies talked P / E ratios, and tech-averse investors like Warren Buffet were dismissed as dinosaurs.

Before investors start partying like it's 1999, here comes a fascinating account of how one investor got swept up in the hype and greed of the last days of the bull market, and how even smart people can be lousy investors.

David Denby is a film critic for The New Yorker, who had little interest in investing until 1999, when his wife announced she was leaving him. The couple agreed to divide their assets, which meant they would have to sell Denby's beloved Upper West Side apartment to split the proceeds.

Denby, obsessed with saving the apartment, concocted a plan: invest their sizable resources in technology funds and aggressive growth stocks, make $1 million and buy out his wife's interest.

Between October 1999 and early 2000, Denby dumped his insurance and more staid portfolio to bet on technology.

"Exposure? Are you kidding?" he writes. "We were naked. I had become that journalistic cliche, the momentum investor who loads up on the hot market sector. But pile on! Pile on! and farewell to diversification."

Unfortunately, he lost almost as much, on paper, as he tried to make. He admits his story won't garner much sympathy with American families struggling on a median income of $43,000. But his frank confessions of his failing marriage, brief fixation with Internet pornography and shame at not being able to tell his wife and two sons the truth about their market losses make his plight sympathetic. You root for him, even knowing in advance that his portfolio is doomed.

Denby's wonderful writing style captures the giddiness, greed and mania that gripped a nation. "Diversification is for fools," declared Denby's friend, whose tech-only portfolio had grown from $200,000 to $1 million.

Unlike many investors whipped up by the market frenzy, Denby tried to understand the technology of companies he invested in. He traveled around the country, attending seminars and talking to CEOs and analysts. Still, especially for a journalist in his mid-50s, he seems far too trusting.

Rather than heeding the alarm bells going off in his head, Denby desperately searched out some major players of the New Economy to tell him things would be OK.

For this reader, these encounters are some of the most entertaining parts of the book.

"Do you ever feel like a man riding a stallion to the edge of the cliff?" he asked Merrill Lynch Internet analyst Henry Blodget over lunch on March 10, 2000, the day the technology-loaded Nasdaq composite index hit its height.

Blodget told him the stallion will slow but is on an endless plain. Denby took comfort. Blodget later was thrown out of the securities business for hyping losers.

Arthur Levitt, former chairman of the Securities and Exchange Commission, devastated Denby with this prediction: "When the market turns down, there will be fewer TV shows, fewer publications. Magazines will fail, talk about the market will dry up. After fifteen years, people will give up and put their money somewhere else."

Levitt wasn't entirely correct. Investors are back in the market. This book, meanwhile, offers both entertainment and insights to human behavior to readers who don't own a share of stock, as well as those with deep portfolios.

Eileen Ambrose, a journalist for nearly 20 years, is the former assistant business editor at The Indianapolis Star and the personal finance columnist for The Sun.

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