Forbes and Wolfe Court Controversy

My blogging "street cred" would be blown if I didn't blog about this. They'd literally pull my blog card and burn it. Maybe nanotech mavens and keepers of the holy flame "that be" will be discussing this one for a long time. It will likely make some furious and cause others to shrug, "So, what else is new?"

Steve Forbes, not only the publisher of one of the best magazines in the world, but also the best economic forecaster alive and Josh Wolfe, one of the foremost "popularizers" of nanotechnology, as well as one of its most visible investing leaders, have sent out a rabidly hyped-up piece, calculated to get the greed juices flowing and capitalize on the public's love affair with stock trading.

Sadly, it may tar them both and their associated firms. Lux Research could be asking, "How do you market high-level, high-brow, high-cost consulting to Fortune 100 companies when you have to deal with the scrutiny of this type of nano-hype noise?" For Lux Capital itself, headed by Josh Wolfe, their "credibility" to promote might rise, but what might institutional investors, other partnering VCs, the academics, agencies and emerging companies with whom they want to work, think about this most base style of marketing? (Not to mention the potential for conflicts of interest and regulatory issues.)

Some might say they got some bad advice.

"Identifying them (ed. note: "long term winners" - nanotech stocks) now, while the sector is just emerging, is the key to creating a vast fortune for yourself." Steve Forbes

Yeah, well . . . let's name 5 retail investors who have created a VAST fortune investing for themselves. Ever? IN THE HISTORY OF THE WORLD? Ok, well, let's NAME just ONE! . . . hmmmm... I can't.

"I wouldn't be surprised if our gains this year far surpass our 91.58% average." Josh Wolfe

I've read every single issue of the Forbes/Wolfe Nanotech Report since the first issue. Josh has fewer than 15 stocks in his recommended "Nanosphere" since 2002 (including IBM and HPQ - huh??) and I can't see how to get to the 91.58% AVERAGE number. Since March 2002 the overall portfolio might be up that much (mainly due the performance of one or two stocks) - but dividing that by 3.5 years . . . hmmm. . . . and that's not a compounded number either. Look, 20%+ compounded annually is MORE than respectable, but some folks might want to look at the performance since January 2004. Not as good, I'd venture. Has the newsletter outperformed the Lux or Merrill Lynch Indices? That's the more important question when analyzing the "value added" of stock market advice.

"So please, get in on the nanotech revolution now. You stand to make a fortune." - also "The nanotech revolution and the obscene profits it will bring astute investors who get in early - will carry on without you." - Josh Wolfe

Hold on . . . I want/love obscene profits - the more obscene the better . .and I sure don't want to be left behind . . I don't want the obscene profits and everyone who gets them (but me) to carry on without me. Definitely don't want that to happen. Does this constitute "HYPE"? Does it matter that we have we heard this before? Well, even a stopped clock is right twice a day - and some might agree he's correct, only too early.

You have to read it for yourself. Included are some potentially confusing statements regarding nanotech-enabled markets. $4.8 Billion for nanocarbon for tires ("that will never go flat on the road" no less). $4.8 Billion of nanocarbon or $4.8 Billion of tires? Ask the typical reader which they think.

What may happen in 1 to 3 months, when this particular marketing effort's effects pass, is that those mostly middle and upper middle class buyers of these 5 featured stocks are "left holding the bag". Pro traders could be drooling now. The typical professional play would be to find shorting opportunities in the five stocks "featured" in the piece (easily identified by anyone who is familiar with the publicly traded nano-landscape) as "Biggest Profit Takers of the Nanotech Revolution!" over the next 2-8 weeks (and maybe some of the rest of the Nanosphere), and cover sometime between February and June 2006, at what they hope will be dramatically lower prices.

Some disclosure here: I cannot lay any claim to be "holier than thou" when it comes to copywriting; certainly, my objectivity can be challenged as the leader of a potential competitor of Lux. Wearer of multiple hats? I admit it. Those caveats aside, this is not about me.

There are three reasons for legitimate investment newsletter publishers (and Forbes is) to do direct mail advertising for a "title". First, it is part of the ongoing building of a new title. This is probably not the case with Nanotech Report - last I heard it had 25-50,000 subs, and is more than 3 years old already. You can't go anywhere on the web in "nanotechnology" without bumping into it like 300 times. Second, the subject is SOOOO hot (think oil and gas recently or gold mining in days past) that the publisher knows they are going to have a return that is "out of the ballpark" on their direct mail dollars. Unlikely it's that - Nanotechnology is nowhere near "hot" - where, for example, 20% of all investors are ranting about it. That might change in 6-18 months, but not now. Third, the title is "failing" or losing subscribers. "Losing subs" is not about the total number of subscribers declining (in fact that number can be rising strongly); it is ALL about the failure to get current subscribers to renew! That is where the publisher (and the writer, by the way) start to make money. The cost of acquisition of a first time sub is so high that dollars don't fall to the bottom line unless and until they renew their subscription. Josh writes an excellent (albeit, too tech-jargon-filled for the intended audience, IMHO), informative, interesting letter, but it might not be entertaining enough (ask Doug Casey about the importance of readability and entertainment value to subscribership - He's the king.) to get by without A. - a lot more stock tips and B. some great shorter-term performance of those tips. If the dollars are not flowing to the subs, I wouldn't be surprised if the publisher is getting antsie.

Look, Financial Newsletter Marketing 101 clearly says "the more hyperbolic the copy, the more effective the marketing; the more subscribers you'll get." A friend from my long ago past, the aforemetioned investment guru, Doug Casey and I used to joke back in the 1980s that THE best envelope copy for an investment newsletter direct mail piece was "Five Stocks Guaranteed to Quadruple in the Coming Nuclear Holocaust" (just the right mix of fear and greed - ha ha - By the way, some people in that field call him the godfather of nanotechnology, and he is the person mentioned here and in Nanotech Fortunes who put the first book on nanotechnology in my hands in 1988).

I've published 7 investment letters, including 3 of my own. The Forbes/Wolfe copy is nothing unusual. But one might not be able to have it both ways. Can one be the key voice criticizing the "nano hype" and also a key instrument or proponent of the hype itself without a cost?