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At the height of the great telecom bubble, Lisa Endlich reminds us, Lucent Technologies’ stock was “as good as currency.” Arguably, it was better than that: Lucent stock could buy whatever the company wanted. Its executives pretended that the business was growing in predictable quarterly intervals – and its investors bought the lie. So universal was the acclaim, Endlich observes in Optical Illusions: Lucent and the Crash of Telecom, that “the chorus of those singing Lucent’s praises had almost no dissenters.”

This is accurate: “almost.” Indulge a brief personal memory. It is April 14, 2000, just a month after what turned out to be the peak period for the Nasdaq stock market. Sequoia Fund, a mutual fund with a conservative investment approach and on whose board I sit, is holding its annual meeting. The shareholders partake of the traditional breakfast and then retire to a banquet room overlooking Central Park to question the fund’s managers.

Till now, Sequoia’s resistance to popular (but pricey) stocks has been a point of pride. Its meetings have had the air of a so-ciety of devoted coreligionists for whom speculation is the cardinal sin. But over the past year, as high-tech stocks have continued to rise, Sequoia’s has fallen – in part because it has refused to purchase shares in companies whose stock price is considered inflated. The natives are restive. Maybe tech stocks, they murmur, aren’t so bad a buy after all?

“I’ve been with Sequoia for over 25 years,” one of them begins, “and there’s no question about it, we’ve done sensationally….But I’d like to be a little bit critical, if I may.” Ears perk up – especially my own, since the shareholder is Bob Steinhardt, my father’s cousin and always one to speak his mind.

“You’ve mentioned the Internet 50 times here today,” Bob continues, rather sarcastically. “And there are some wonderful stocks on the Internet. I can name them for you – blue chips like AOL and Lucent. I’d like to suggest to the board and those of you up there,” signaling Sequoia’s managers, “that you hire an Internet/technology person.”

Lucent’s claim to blue-chip status had spread even to Sequoia’s shareholders. The company, believers argued, was not some paper dot com; 60 percent of America’s telephone lines were wired to Lucent switches. Unlike Yahoo or WorldCom, Lucent was considered a “safe” new-economy stock – a business-like distributor of digital shovels to all those high-tech miners. That was before the company lost $16 billion in a single fiscal year (2001), bid adieu to two-thirds of its staff, and, not incidentally, absorbed a decline in its stock market value of $250 billion, equivalent to 2 percent of the U.S. gross domestic product.

How did it all happen, and given the financial euphoria of the 1990s, could Lucent have done better? Internet mania was certainly beyond the company’s control, but the expectations of Wall Street were not. Setting and meeting those expectations “subsumed all other goals,” according to Endlich. She doesn’t exactly approve of this, but she argues that, given how pervasive the -bubble was, Lucent had little choice but to ride the wave. The company had to increase its stock price, or employees would depart en masse for Silicon Valley. It had to win friends on Wall Street, or it wouldn’t be able to use its stock to acquire other simi-larly overpriced firms, as its competitors were doing. If this strategy ultimately failed, Endlich concludes, Lucent’s executives cannot be faulted for lacking the clarity that “only hindsight affords.” Therefore one should not be too harsh in judging their strategic blunders – for who could have foreseen the utter collapse of growth that stunned the telecommunications industry?

However, if Endlich’s assessment were true – if Lucent had merely been hit by a bolt of lightning – the story would have no culprits and little to teach us. Of course, Endlich believes that Lucent’s story is instructive. “Perhaps some light can be shed on the boom and bust at the turn of the century by adopting a micro point of view,” she tentatively suggests. But though her book is rich in detail, she leaves it to us to determine exactly how Lucent (which means “marked by clarity” and “glowing with light”) illuminates the recent period of folly.

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