Market Jitters

When will investors in Internet stocks be able to take a deep breath, turn away from CNBC, and relax? When will Net companies regain their confidence about going public and about maintaining reasonable share prices once they do? In short, when will Wall Street calm down?

Phillip "Pip" Coburn, 34, global technology strategist for UBS Warburg, has a simple answer to such questions: Never. Volatility, he says, "is a unique and necessary condition for the creation of value" in the Internet economy. "Tech stocks are going to be volatile forever. When they stop being volatile, they stop being tech stocks. That's not bad, that's not good. It just is."

It's also vintage Coburn, who conducts himself more like a philosopher and an intellectual provocateur than the Wall Street analyst that he is. Coburn has impeccable Wall Street credentials. A little more than a year ago, he crossed over from the buy side -- he was a portfolio manager and technology analyst at New York City money manager Lynch & Mayer -- to join the technology-investment group of UBS Warburg, a financial-services giant formed by the 1998 merger of Union Bank of Switzerland and Swiss Bank Corp. Before that, Coburn was an equity trader for CJ Lawrence Morgan Grenfell.

Despite his money-market roots, Coburn seems more a creature of Silicon Valley than of Wall Street. He prefers wearing khakis and sweaters to wearing pinstripes and suspenders. And he shares the startup world's zeal for changing the rules. In a business that prizes brash claims and nerves of steel, he operates with an aura of detached calm.

Indeed, Coburn spends less time staking positions and more time roving the frontiers of his organization and of the new economy, listening for rumblings of change. "Analysts are known for taking a godlike stance in the marketplace," he says. "They're effectively saying that they're smart enough to be self-sufficient. I take the opposite approach, which is that nobody is as smart as everybody."

One product of Coburn's roving is a research report called "The Weekly Global Tech Journey," a glossy booklet filled with punchy essays that have such titles as "Mashed Potatoes in Martini Glasses" and "Life Happens to the Left of the Decimal Point." The report is sent to more than 11,000 clients -- mostly portfolio managers and analysts. Coburn mixes data points and sector analyses with pop-culture references, digital thinking, and 17th-century philosophy. The expansive scope of his writing isn't just meant to be interesting -- it's meant to make money. "The fact is," he says, "companies don't move markets, markets move companies. It's important to 'connect the dots' between the larger currents in the world and the fundamentals at specific companies."

In a series of interviews with Fast Company, Coburn shook off this spring's market jitters to explore those currents and to unpack the logic of value in the Internet economy.

When will tech stocks become less volatile?

Tech stocks are going to be volatile forever. When they stop being volatile, they stop being tech stocks. That's not bad, that's not good. It just is. Technology is different from other sectors of the economy -- the rates of growth are different, the levels of complexity are different, the range of outcomes is different, the demands on management are different. And, with the Internet, the intrinsic volatility of tech stocks gets magnified even further. Volatility is a unique and necessary condition for the creation of value -- in the financial markets and in society at large.

Not so long ago, people believed that we were close to creating a science out of finance. We got discounted-cash-flow (DCF) analysis, economic value-added (EVA) models. People went through Harvard, Stanford, and Wharton and got loaded up with all of the theories. But over the past five years, the science of finance has been blown out of the water. We are seeing a massive divergence between the ideas behind financial theory and the ability to actually use theory in the marketplace. That doesn't mean you throw up your hands -- it means you change your expectations about the logic of the market, and you rethink the way that you evaluate stocks.