For David Denby, film critic for The New Yorker, his wife’s announcement that she was ending their marriage was the moment when, as he notes in his recent book, American Sucker, his life “wandered off the tracks.” An eloquently candid, if wordy, memoir, filled with rich observations on greed, lost love and the destructive pursuit of wealth, American Sucker is the tale of Denby’s ill-fated attempt to ride the dot-com wave in 2000.
Was Denby, a salaried journalist, qualified to gamble his family’s savings in a volatile stock market? Not really, if one goes by his past experience. Never active investors, Denby and his wife had traditionally put their earnings from their jobs and books into his 401(k) plan, tax-free municipal bonds, and large-cap value and growth funds. But all that changed during the dot-com boom.
Confronted by a bewildering array of opportunities to invest in high-flying technology firms, Denby violated one of the most basic commandments of investment – invest only in businesses you understand. But even as he strove to learn about fiber-optics and biotechnology, he didn’t see his ignorance as a hindrance. More than understanding, it seemed, investors needed an ability to move with speed. “The market was galloping and I thought that there was no need to worry if the harness was a bit loose or the bit didn’t quite fit the horse’s mouth,” he writes. “In such an over-stimulated climate, there was a measure of relief in just buying something.”
And buy he did. In 2000, with his wife’s permission, Denby bought shares in JDS Uniphase, Broadcom, Rational Software, and Internet Capital Group. Although some of these stocks were high-priced, Denby was unfazed. He reasoned that just as stocks like Dell and Cisco had grown and grown during the1990s, his investments too would prove their mettle. He moved all of his 401(k) money from an S&P 500 index fund offered by his employer Conde Nast, to the Fidelity OTC Fund.
In the beginning, Denby’s moves looked savvy. The portfolio’s worth shot up by 20%, and even ImClone, one of his “shrewd” investments, suddenly showed some promise. Yet Denby was racked by doubt. He had staked almost all his family’s assets into so-called New Economy companies. Was that wise? Or mad? What about the rumors that start-up Internet companies were going bust because they had burned through all their cash? Would this bubble go the way of the biotech boom-then-bust of 1991?
While he was elated when two of his funds – Van Kampen Aggressive Growth and Fidelity Select Biotechnology – went up over 50% the first year, he was also haunted by the story of John Nyquist, a day trader in South Carolina who, one day in 1999, pushed his wife off a balcony and tried to finish the job by choking her because he was afraid to tell her that he had squandered $780,000 in bad investments. This was almost their entire savings, including his wife’s retirement funds, which he had accessed by forging her signature. Was Nyquist’s fate an omen, Denby wondered. Would the investment frenzy eventually end in a stock market implosion?
During the spring of 2000, Denby watched the Nasdaq composite index climb to 4,700. He attended New Economy monthly meetings held in a spacious conference room with a glass roof in a Tribeca brownstone. Under the brilliant light, Denby was dazzled by the throngs eager to invest and promote new Internet start-up companies. He was especially impressed by the clarity and power of a speech made by Mark Walsh, CEO of VerticalNet, then a new business-to-business Internet company: “If you knew in 1979 what you know about the development of cable,” Walsh said, “wouldn’t you have borrowed every dollar you could, mortgaged your house, maxed your credit cards in order to get into cable?” The rhetorical answer was a resounding yes.
Little in Denby’s earlier life had prepared him for this moment. His previous work, Great Books, published in 1996, was a literary account of how he salvaged his middle-aged blues by re-discovering the pleasures of reading classic Western writers like Homer, Plato, Rousseau, Jane Austen, Karl Marx, and Virginia Woolf, among others. He had grown up in California during the 1960s, dedicated to disdaining a life that involved anything to do with earning money merely for the sake of getting rich. In retrospect, Denby believed that he and other young people were “too literal-minded to understand that discovering your soul and holding a job were not always incompatible.” As a movie critic supporting a young family in New York, he wore his clothes until they were threadbare and shunned shopping unless it was to buy books and records.
What, then, spurred Denby’s giddy ride into the bull market? As it turns out, he began his foray into financial speculation because he wanted to buy out his wife’s share of their West End apartment. (His ex-wife is the novelist Catherine Schine.) The seven-room home where he and Schine had written their books and reared two boys was worth about a million dollars; it was most likely going to be put on the market so that the proceeds could be divided in half between the couple. “I’ve lost my wife but I am not going to lose my home” was the mantra that led to his betting almost 80% of his family’s liquid assets on the Nasdaq exchange. His home was broken but he wanted to preserve the shell.
Denby cloaked the shock that his wife’s exit dealt to his ego by setting out to make a fortune – one million dollars, to be precise. As a journalist on a salary, there was no way Denby could earn that kind of money professionally. But a booming stock market coupled with the astounding growth of tech entrepreneurs meant that even ordinary people with money to invest could become rich overnight.
Denby’s book captures the mood and pace of that heady era. Everywhere he went, for example, he encountered “stock talk.” Killing time by a newsstand, he was urged to “buy Ariba” [a B2B software company] by the Pakistani vendor. Standing in line at a hardware store, he overheard two day traders tossing stock news back and forth. Walking towards the subway, Denby was startled by a stranger jubilantly shouting out one word at him: “Ericsson!” What was it about him that made the stranger think he would want to buy stock in the Swedish telecommunications company, he asked himself. What kind of signal was he emitting? Or, more to the point, why was Denby picking up only those signals? “Where was it decreed – on what tablet was it inscribed – that writers should not get rich too?” he defiantly asked himself, as he plunged into the deep waters of the New Economy.
Television, magazines and newspapers were abuzz with stories about public offerings tripling their price almost instantly, about communications technologies that were transforming the market. All this made him feel that the only wrong step was not to buy.
At one of the evangelical New Economy breakfast meetings, he encountered a man he believed to be the true voice of the Internet: a young, blond, analyst from Merrill Lynch, Henry Blodget. Using the lightning flash of Power Point presentations, Blodget boomed out the promise of the day: “The leading stocks are proxies for the growth of the Internet.”
In May 2000, Denby discovered another entrepreneur of his dreams: Samuel Waksal, a “worldly scientist” and CEO of ImClone Systems, a biotech company that suddenly took off in late 1999 because of a promising new cancer treatment drug. Of course Blodget as well as Waksal were soon to be trapped in investment scandals. But before that, Waksal’s champagne and wine-flowing soirees were in full celebratory swing, and Denby found himself wandering around Waksal’s SoHo loft mingling with the New York glitterati – people like investment gurus Carl Icahn, Peter Peterson and domestic diva Martha Stewart. Denby felt like an “actor on a stage, warmed by attention.”
At around the same time, Denby stumbled upon a new infatuation: a gleaming, sleek, Audi 6 that he longed to possess. Now he had another reason for raising money in the stock market. Beset with desire, Denby was simultaneously distressed at the vulgarity of his longing. “Greed, I saw, had its own momentum. It created new objects of desire.”
When the World Trade Center was destroyed on September 11, 2001, taking the stock market tumbling down even as a recession set in, Denby too sensed the beginning of the end of his dream of netting a million dollars, of owning that car. The rest is history: The market went into a slump; the FDA refused to endorse ImClone’s cancer treatment; Blodget was dethroned, Waksal went to prison, and Martha Stewart last week was found guilty of conspiracy, obstruction of justice and other charges in connection with the sale of her shares in ImClone.
At the start of 2002, Denby tallied up the results of his quest for a magic pile: “Cumulative Net Loss $800,000.” Like hundreds of other investors, he survived the crash by paring his lifestyle and trying to earn more money. He sold his home, moved to a smaller apartment, and fell in love with another woman. In the end, Denby says he is thankful for being alive and able to enjoy “the slower, gracious life.”
American Sucker is a modern fable, written by a gifted writer, that proves the resilience of the old adage about a fool and his money soon being parted. It is less instructive about the circumstances that led to the rise and collapse of the Internet bubble than about the factors that make the human psyche vulnerable to such booms and busts. It makes a good literary book-end to another volume about that same era of hope and hucksterism, coincidentally also penned by another journalist, John Cassidy’s Dot Con. In fact, Cassidy had warned his colleague about the perils of investing in high-risk technology and Internet stocks. Denby, as this book shows, wasn’t listening.