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Technology Stocks : America On-Line: will it survive ...?
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To: Tilon who wrote (8280)2/26/1998 10:08:00 AM
From: steve lipson  Read Replies (3) of 13594
 
Again, I caution you bears that you need to do some math once in a while.

>>Many people have made a lot of money investing in America Online Inc. but few can match the success of investors who bought $350 million of "junk bonds" AOL sold last November.<<

If you believe that I've got a bridge in Brooklyn I need to talk to you about.

The reporter's basic assumption is so completely off base you have to question all of the so-called analysis in the story. (Actually, the analysis hardly goes more than skin deep, comparing P/E's for gigantic and relatively mature businesses Microsoft and Coke to any emerging growth company is preposterous. What about revenue growth, market share, price-to-sales ratio.)

But let's get back to this absolutely laughable premise that institutions got an inside sweet deal on some junk bonds because of Wall Street promoting the stock to serve its own selfish ends. The junk bond holders could realize a 14 percent gain in three months. Whoooooeeee! How, pray tell, does that compare to the 30 percent gain in two months for shareholders in the stock this year? How pray tell does that compare to the 170 percent gain in 1997 for everyday shareholders in the stock? (Hint, for you mathematically impaired types: 14 percent/quarter compounded is about 69 percent/year so about 100 percent underperformance vs. the underlying stock.)
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