My Lowest Ebb(ers) (opinion)

By John Allen Paulos

1 March 2005
The Wall Street Journal

Bernie Ebbers's testimony yesterday that he emphatically was not aware that his accountants were cooking WorldCom's books while he was CEO brought back unpleasant memories of my disastrous "relationship" with the man. It began in 2000, when I received a small and totally unexpected sum of money. I considered it "mad money," a term that, in retrospect, seems all too appropriate. Nothing distinguished the money from my other assets except this private designation, but being so classified made my modest windfall more vulnerable to whim. In this case it entrained a series of ill-fated, and much larger, investments in what WorldCom's ads called "the pre-eminent global communications company for the digital generation."

Today, of course, the now defunct WorldCom is synonymous with fraud, but in the halcyon late 1990s it seemed an irrepressibly successful devourer of telecom companies. Mr. Ebbers, the founder, is now viewed by many as a scheming pirate, but then he was seen as a charming swashbuckler. I had read about the company, knew that high-tech guru George Gilder had been long and fervently singing its praises, and was aware that among its holdings were MCI, the huge long-distance telephone company, and UUNet, the "backbone" of the Internet. I spend a lot of time on the net -- home is where you hang your @ -- so I found Mr. Gilder's lyrical writings on the "telecosm" and the glories of unlimited bandwidth particularly seductive.

I also knew that, unlike most dot-com companies with no money and few customers, WorldCom had more than $25 billion in revenues and almost 25 million customers, and so when several people I knew told me that it was a "strong buy," I was receptive. Although it had recently fallen a little in price, it was, I was assured, likely to soon surpass its previous high of $64.

After buying the initial shares, I found myself idly wondering, Why not buy more? I didn't think of myself as a gambler, but I willed myself not to think, willed myself simply to act, willed myself to buy more shares of WCOM, shares that cost considerably more than the few I'd already bought. Usually a hard-headed fellow, I nevertheless succumbed to confirmation bias, looking disproportionately hard for what made my investment look good and essentially ignoring everything that made it look bad. This wasn't difficult, given the stellar reports and strong buy recommendations that analysts kept bringing forth. In any case, I fell in love with the stock and saw every drop in its price as bringing about an even better buying opportunity. So-called averaging down (buying more shares when the price drops) is often indistinguishable from catching a falling knife, and in my case the result was thoroughly bloody hands.

A natural reaction to the vagaries of chance is an attempt at control, which brings me finally to the e-mails regarding WorldCom that, Herzog-like, I sent to various influential people. I'd grown tired of carrying on one-sided arguments with TV and online commentators as they delivered relentlessly bad news about WorldCom. So, in late fall 2001, some six months before its final swoon, I contacted a number of them and, having spent too much time in the immoderate atmosphere of WorldCom chatrooms, I chided them for their shortsightedness and exhorted them to look at the company differently.

Finally, out of frustration with the continued decline of WCOM stock, I even e-mailed Bernie Ebbers in early February 2002, suggesting that the company was not effectively stating its case and quixotically offering to help in any way that I could. WorldCom, I fatuously informed him, was well positioned, but dreadfully undervalued.

Even as I was writing them, I knew that sending these electronic epistles was absurd, but it gave me the temporary illusion of doing something about the free-falling stock. Investing in it had originally seemed like a no-brainer. The realization that doing so had indeed been a no-brainer was glacially slow in arriving, and I didn't dump it until April 2002, after it had lost almost all value. I gradually woke from this nightmarish infatuation with WorldCom to wonder how it had transformed me from a prudent investor in low-fee index funds into a monomaniacal speculator in a single dubious company.

I'm following Mr. Ebbers's trial, but not overly closely. Happily I'm largely past my WorldCom experience, but remnants of my fixation persist. I occasionally wonder what might have happened if WorldCom's deal with Sprint hadn't been foiled, if Mr. Ebbers hadn't borrowed $400 million (or more), if Enron hadn't imploded, if this, that or the other hadn't occurred before I sold my shares. Whatever the trial's outcome, however, I've long since come to a verdict on my behavior: guilty of stupidity in the first degree. No jail term, just a very substantial fine.

Mr. Paulos, a professor of mathematics at Temple University, is the author of "A Mathematician Plays the Stock Market" (Basic Books, 2003).

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