UP
FRONT
Caution in a High-Risk Culture
In the overheated atmosphere of Silicon Valley, investors need to hedge their bets.
By Ann Marsh
PERSON OF INTEREST
In 1998, Sanjeev Sardana joined the San Francisco office of DLJ as a junior member of the wealth management division. A little
more than a decade earlier, he had
emigrated from New Delhi at age 17.
Sardana neither came from wealth
nor knew anyone in Northern California. Nor did he really understand the
difference between software and
hardware. But he arrived with a few
compensatory advantages.
First off, he wasn’t afraid to make a
cold call and wage a polite, but relentless, campaign. That’s how he had
persuaded his boss to give him a
job in the firm’s sought-after California office in the first place. Second, he knew that nearby Silicon
Valley was home to other Indian
immigrants. Overall, he estimated
that as many as 30% of startups
there were begun by Indians.
“My premise in moving to
Silicon Valley,” Sardana says,
“is that there was a lot of wealth
being generated there and how
am I going to be different?”
To that end, he turned his
relentlessly polite campaign to his
fellow Indians at a time when one
of the strongest and most irratio-
nally exuberant bull markets was
nearing its peak. Fueled by the
first wave of dot-com startups,
double- and triple-digit millionaires
were being minted, on paper at least,
overnight. In this overheated environ-
ment, Sardana made his pitch advocat-
ing caution. It didn’t always work.
One early client was a software engi-
neer who owned one million shares
of InfoSpace, an online Yellow Pages
startup. After going public in 1998, the
company’s shares hit $482 in 2000
before starting to slide. When Sardana
began working with him at the end of
that year, the price had dropped to $60. “I
went to see him and his wife at a restau-
Sanjeev Sardana BluePointe Capital Mgmt. “In some ways, it’s easier to make the money, but much arder to hold on to it.”
rant,” Sardana recalls. “I said, ‘Hey, why
don’t we hedge some part of this stock to
give you some downside protection?’ He
said, ‘Yeah, that makes sense.’ ”
Before the client could sign the
paperwork, onetime high-flying Mer-
rill Lynch analyst Henry Blodget pre-
dicted InfoSpace stock would rebound.
Blodget had called Amazon’s meteoric
stock rise accurately, and Sardana’s
new client was swayed. “So this guy
says, ‘Hey, I’m not capping my upside;
I could be worth a quarter of a billion
dollars,’” Sardana recalls.
Instead, the slide continued
until the price hit $1.40. Because
the client had exercised options,
he ended up with stock worth
$1.4 million — and a $10 million
tax bill on shares he had sold as
the stock was dropping. “It was
bad,” Sardana says.
asset protection
More fortunately, other new
clients listened. During the
dot-com boom, Sardana recommended that his clients with
large concentrated positions
in single stocks create hedges
while putting a portion of their
holdings into a “costless collar”
investment structure. A collar
protects against downside exposure while limiting the upside
