State must learn when to fold 'em

By Mike Leidemann
Advertiser Staff Writer

What if your Uncle Bobo called and said he had a great investment deal and he could get you in right from the start? You'd be interested, wouldn't you?

And what if this great deal worked out better than anyone ever dreamed? What if your $1.50-a-share stock steadily rose and rose, to $50, $75, $100? You'd be grateful, wouldn't you?

You'd be worried, too. Any sensible person would. You'd probably want to cash out before something went sour with the deal. Only the truly greedy would hold out for more.

Yet that's just what Uncle Bobo tells you to do.

$120? "Hold."

$140? "Hold."

$156? "Hold."

Of course, the bubble bursts. That's the way the market works. Suddenly, before you know it, your stock is dropping faster than a spent bullet. Even as the stock keeps spiraling downward from $120 to $75 to $50 to $25, Bobo insists that you hold on to it.

Pretty soon, the company is in serious trouble. By the time Bobo finally gets your money out, the stock is all the way down to $3.40 a share.

Well, it's not a total disaster, you say. You still made some money. But you are a little angry, too. You made a few thousands dollars, but on paper at least, you lost millions. To put it another way, you could have made so much more.

Sounds like one of those cautionary tales against getting greedy, doesn't it? Except the story is real. And the disappointed investor really is you — or rather the state, which was playing the market with your tax dollars.

The whole story played out over the last seven years in Hawai'i, where the state, through its Strategic Development Corp., bought more than 300,000 shares of Digital Island Inc, a local startup provider of Internet services. It's part of a decent program to help develop technological companies in the state.

Through a long and wild ride, Digital Shares soared skyward and at one point the state was expecting to get between $30 million and $40 million from the deal. On paper, the state made millions.

Of course, the bubble burst. When Digital Island was finally bought out last month by a London-based company, the stock was already back in the single digits. Eventually the state will end up getting about $2 million return on its $450,000 investment.

Well, it's not a total disaster, you say. The state still made money. But you're a little angry, too, because it could have been so much more, so much better.

If only someone hadn't gotten greedy. If only we had sold when all the insiders, like the company president, did. If only someone had been just a little smarter. If only we'd gotten out while the getting was good.

If only Uncle Bobo wasn't playing so fast and easy with our taxpayer money.

Mike Leidemann's columns appear Thursdays and Saturdays in the Advertiser. He can be reached at 525-5460, or mleidemann@honoluluadvertiser.com.