Selectica Afterburner

Selectica vacillated between 120 and 150 for the first few days. I was tempted to sell some, but I hesitated. I resented those well-connected few who sold their gifted IPO shares the first day or two of trading. This was known as “flipping” and seemed disrespectful, ungrateful. Financial types didn’t mind. To be truly concerned only with the bottom line, one had to become hardened to any of the softer considerations. I hadn’t reached that point and didn’t really want to. I often considered that this was an attitude that held me back from the real VC life. I simply wasn’t ruthless enough on the financial side.

I figured I owed Raj a little loyalty. He’d given me an entree into the game; I didn’t want to turn and run. Over time I might sell it. Frankly, I still hoped it would continue to rise. With a 5X start, this was asking a lot. But in this market, anything was possible.

I went up to E-Trade’s SF office and delivered my check for $13,500. An Asian fellow was on my side of the counter, doing the same thing. We didn’t speak, but he had a big grin on his face.

“Do you want to place any sell orders?” asked the clerk taking my check.

“No,” I told her; “I’ll hold.” It was risky, walking away from certain money. Like Itochu, I too was a strategic investor. I believed in what Selectica was doing, in the power of the web to redefine commerce and business processes. I let my bet ride.

A week or two later, I decided I’d better move the stock over to an account where I could trade it sometime. Dad had suggested we sell enough to get our money back. This seemed like a good idea. However, I didn’t want to be on a list of sellers — even if only a few shares.

Selectica’s stock was moving but generally remained below its first day high. I had experienced that “high.” Why should I accept something lower when I know it could touch 150? I sent in a form requesting transfer of the stock to Datek. Then I prepared to wait with strategic patience.

March turned out to be a difficult month for Internet stocks. Several took major drops on bad news, either from accounting firms, analysts or their own revenue numbers — not that investors were looking very carefully at numbers. Selectica dropped below 100 in sudden, wild movements. A few well-known analysts suggested major consolidation of over 80 % by year’s end. Investors were getting nervous.

After another market dive in early April, Selectica’s stock dropped below 50. It still gyrated, but within a narrower band. My shares had been stuck in transit when the real volatility hit. I couldn’t bail if I had wanted to. Still, I held to my belief in the concept. Was I too emotionally involved? Maybe that’s why financial investors could just unload, they of little faith. But then, their returns were better than mine.

It was hard to unload stock at something other than its high. It could get there; it did get there once! So one holds — like a monkey who is caught in the classic trap. Unwilling to let go of the banana inside, we investors don’t want to lose the fruits of our betting. Our hands are trapped in the green screen showing our portfolios. We can’t sell, can’t release the profit we had, hoped to have again. The image appeared of a man being sucked into the screen itself, down, down into the electronic monkey trap. So much for Norman Rockwell!

I tried to shake off this unflattering metaphor. If I could just ride the volatility, maybe I could generate some money. Buy Selectica at 35 or 40; sell it at 60; repeat. It was a strategy akin to a wave machine, generating electricity from wave motion. The problem was that stocks aren’t as regular as waves, nor are they as susceptible to forecasts.

At one point, Selectica again exceeded 100. Alfred, always the active investor, came into my office one morning. “Raj! That secondary offering killed me!” The stock had dropped precipitously between 60 and 80 again as four million new shares from the company saturated the market.