The Speculator's
Corner
The X-Files
By Laurel Kenner and
Victor Niederhoffer
Special to TheStreet.com
2/22/00 5:11 PM ET
URL: http://www.thestreet.com/comment/thespeculatorscorner/887998.html
"The stock of ideas which mankind has to work with is very limited, like the alphabet, and can at best have an air of freshness given it by new arrangements and combinations, or by application to new times and circumstances."
-- James Russell Lowell (1819-1891)
Guaranteed to happen: When the Dow reaches lows on Fridays and Mondays, gray eminences who have been bearish since Dow 2000 will be paraded on television. There will be stern warnings about how people are finally starting to listen to Alan Greenspan's warnings on euphoria. Predictions will abound that the Dow will soon fall below 10,000.
But we try to stay above the fray at moments like these, knowing that such times are a good time to buy, and will concentrate on ways to improve our investments.
At one point this morning, Vic, along with the whaling men in Moby Dick, was just about to retire to the downstairs of his trading floor to revise a copy of his will. He was joined by Laurel, whose remaining Nasdaq stocks were all diving for the deep with the great white whale.
But it's darkest before the dawn. The morning low of 10,104 on the Dow looked like a true fermata moment, so we took out our canes right after writing and started buying stocks to the full extent of the bank balances -- always taking into consideration that survival is key.
You don't have to be a genetic engineer to figure out that that the moves in stocks these days evolve mainly from ideas, stories and buzz rather than from current value. The way in which ideas are transmitted into decisions -- and then into fantastic bullish euphoria -- is extensively studied in theories of innovation, epidemics and mass communication. Richard Dawkins, an Oxford University science professor, uses the concept of memes to describe units of information -- words, music, gestures or skills --residing in the brain, which replicate themselves throughout our culture.
"If it is a tune, the catchier it is, the more likely it is to be copied," he says. If Dawkins were writing about the market, he would include the buying of the latest hot-stock group, be it dot-coms, wireless or biotech, as an example of memes diffusing through our society.
A beautiful case study on how stories on stocks get communicated to the population at large is Xcelera.com (XLA:Amex). The story of this company should be required reading at every business school.
Until last October, Xcelera.com was called Scandinavia. It owned a 331-room hotel in Spain's Canary Islands off the African coast, but was morphing into an Internet holding company. Last April, it bought a majority stake in Mirror Image Internet, a networking-software company. It also was an investor in deo.com, an enterprise that distributes music over the Web.
Xcelera.com's morphing picked up speed late last year. In December, Hewlett-Packard (HWP:NYSE) said it would supply servers and storage to the company, and invest $32 million through an equity and convertible debt arrangement. On Jan. 27, Xcelera.com sold its hotel and announced it would henceforth concentrate on building a portfolio of European Web-infrastructure companies, B2B firms and "companies that provide their complete service and value proposition digitally on the Internet."
The market quickly rewarded Xcelera.com's nimbleness. The stock price has appreciated more than 40,000% in the past 12 months, conferring on Xcelera.com -- which reported $11 million in revenue last year -- a market value exceeding $7 billion. The shares reached an high of 284 this morning, up from a split-adjusted 43/64 a year ago today. Since last October, the stock has split four times.
If the rise of Xcelera.com was a symphonic movement, it would have seemed to reach a climax with George Gilder's recommendation last Thursday. In the past three days, the stock has doubled.
Note that we have nothing against Xcelera.com. We have little doubt that the company's technology is peerless, and that its promise is no less than that of the other e-commerce providers that are so busy setting investors' hearts on fire. It's just a perfect example of how memes are communicated in our culture.
Reader Bob Morris, who understands memes very well, responded to our Friday article on the meme "gen" with this note: "To get maximum buzz, we need to combine memes. How about ImmunoGenBiz.com, a B2B site selling gene sequence patents with wireless bidding via cellphone?"
Absolutely. And we also agree with our reader Marla, who writes, "What about Cytogen? Lots of ways to play that name."
But we will start from a humbler plateau in our own work. We will try to build up memes, sequence by sequence, and find their expression through statistical analysis. As a first step, we have focused on companies with the very active meme "X."
It was only a few hundred years ago that Dr. Johnson could point out that there were no words beginning with X in the English language. But in our modern funky economy, there are legions. We constructed an index of X companies available on Dec. 31, 1996: Xerox (XRX:NYSE), Xicor (XICO:Nasdaq) Xircom (XIRC:Nasdaq), Xilinx (XLNX:Nasdaq) and Xomed. When Xomed was acquired in October 1999, we replaced it with Xceed (XCED:Nasdaq).
We are happy to report that the X meme is propagating well through the canyons of Wall Street. As of the end of January, the X index is at 319, vs. 197 for the S&P 500 Index -- with a level of 100 as of Dec. 31, 1996, used for the base. We will be reporting on the X index in our scorecard in the future.
As all our readers know, companies tend to show great upward moves on the announcement of their inclusion in widely indexed benchmarks. Doubtless it won't be long before additions to the Xs have similar surges. So Laurel, as the keeper of the additions and deletions to the index, is a very valuable person to know in addition to her other good character traits.
We happened to have the pleasure of dining together on one occasion, and Laurel muttered that she recently had sold Xilinx and was getting tired of Xerox. Will these be reflected in the next revision of the index? Might Xybernaut (XYBR:Nasdaq) or Xenometrix (XENO:Nasdaq) be candidates for inclusion? Perhaps, you, like I, will begin monitoring her travel schedule to find out which stocks she will favor, which she will xcommunicate in the revisions to come. Be aware, she has xceptional taste in food, and so may be an xtraordinarily xpensive dinner date!
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Laurel Kenner is a former markets editor of Bloomberg, and a trader. Victor Niederhoffer is currently a private investor and author of Education of a Speculator. At time of publication, Kenner was not long any of the issues in this column, while Niederhoffer was long Xerox and held a net long position in S&P 500 futures and options, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While they cannot provide investment advice or recommendations, they invite you to comment on this column at mailto:%20lkenner@thestreet.com.
