Regrets? I've had
a few million
A $100,000 bet on Net stocks is worth $730,000 or more one year later
By Bob Sullivan
MSNBC
Jan. 3 — If just once in your life, for five minutes, you could go back in time — back to Jan. 2, 1998, specifically — what should you do? Mortgage the home, hit up friends and relatives, do what you can to pull together $100,000. Then bet it all on Amazon.com, Inc. If you could, you'd be a millionaire tonight. This is the kind of dream that came true for lucky Internet investors last year, and a financial reality that leaves everyone else wondering “Why didn't I…?!”
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‘When you start feeling really rich, really flush, it's usually a good idea to leave for a while. '
— BILL HAMMOND
Internet investor OK, SO AN ALL-OR-NOTHING BET on the year's best performing stock is such blatant, unfair hindsight that even a Monday morning quarterback wouldn't buy it. Who could have known last year what would happen to Amazon?
So let's make the game a little more realistic. Let's say you were a strong believer in the Internet last year, so you spread your $100,000 evenly among America Online, Yahoo, Infoseek, Earthlink, Network Solutions and of course Amazon. You probably figured at least one or two of those plays would pan out.
Here's a list of the top 10 performing stocks this year (companies over $1 billion market capitalization). How much money could you have made this year? Enter the amount you might have invested in the left column, under Jan. 2, 1998. Then hit submit, and try not to kick yourself too hard.
Company Jan. 2, 1998 Current value
Amazon.com, Inc.
Network Solutions, Inc.
CMGI, Inc.
Metromedia Fiber Network, Inc.
Yahoo! Inc.
New Era of Networks, Inc.
America Online, Inc.
MindSpring Enterprises, Inc.
EarthLink Network, Inc.
Infoseek Corporation
Total
SOURCE: Microsoft Investor
This diversified Internet strategy would have turned your $100,000 into $737,000 today — not the 960 percent returns of Amazon, but a nifty increase of 630 percent.
But who really would have invested so boldly in such a narrow, risky set of stocks? Such stalwarts are out there, a new class of paper millionaires, thanks to the virtual universe of the Internet.
They're people like 51-year-old William Harmond. A retired TV executive living in California, Harmond now has over $1 million in the stock market. He bought Yahoo at 33 in the spring of 1997 (it has since split three for two), and has been on a joyride with Internet stocks ever since. AOL, eBay, Amazon — he's been in and out of all the big names, and seen a 400 percent increase in his portfolio this year.
Stock charts of most leading Internet issues look just like Amazon's, including the torrid fourth-quarter run-up.
DATA: Microsoft Investor
“These stocks just keep rewarding you,” says Harmond, who began investing as a teen-ager. “I've been very, very, very fortunate. As a friend of mine says, these are the good old days right now.”
In fact, the days got so good this year that by November, Harmond felt dizzy and had to withdraw.
“I just had to get out of the market, had to get out of it emotionally, just so I could sleep at night. I'd never made that much money before. When you start feeling really rich, really flush, it's usually a good idea to leave for a while.
“But the Internet market has put that judgement to the real test. It's gone up so fast that you have to fight that feeling after a while, say ‘Hell, it's foolish to sell.' ”
Amazon.com, Inc. (AMZN)
price change
$354.94 +33.688
eBay Inc. (EBAY)
price change
$240.00 -1.250
Yahoo! Inc. (YHOO)
price change
$248.00 +11.063
K-tel International, Inc. (KTEL)
price change
$10.81 +0.313
Dell Computer Corporation (DELL)
price change
$74.19 +1.000
Data: Microsoft Investor and S&P Comstock 20 min.delay
Like many active traders, Harmond has bought and sold the same stock several times this year, meaning even the drastic market correction in August worked to his benefit — he sold his Yahoo shares at 123 and bought them back at 80. So he's not terribly worried about the possibility of a major correction coming for Net stocks in 1999 — he figures market leaders like Amazon will be the last to fall, so there will be time to sell and take his profits.
Faith like Harmond's — faith in the future of the Internet, and in Internet-based businesses — was handsomely rewarded in 1998. There is no other way to say it: 1998 was the year of the Internet stock. Of the top 10 performers of the entire U.S. market in 1998, removing small companies with market capitalizations of under $1 billion, 7 are pure Internet plays. The laggard of the group, Infoseek, jumped over 400 percent. If you invested $100,000 evenly among all 10 at the start of the year, you have about $732,000 right now.
Such impossible returns are enough to make just about anyone think “I wish I had ... I shoulda, coulda, woulda...” But is there anything to be learned from all this, anything that can be applied to 1999? Or are folks like Harmond just lucky stiffs? What could we have possibly seen on Jan. 2, 1998, that would have tipped us off?
... but K-tel's roller-coaster ride was enough to make any investor queasy...
“There's no way anyone could have forecast quite how large the move has been,” said Lize Buyer of Credit Suisse First Boston, who has been among the most bullish on Amazon all year. But size aside, she doesn't think Amazon's tremendous gains are completely out of left field — she believes there are rare occasions when investors shouldn't get hung up on price ratios or quarterly balance sheets, and instead, bet on people.
“There are times when investors need to suspend fundamental security analysis. These moves are based on superior management teams that appear to be executing their business plans,” Buyer said. “Amazon.com has done a superb job at delivering products, better than anyone has expected.”
Is it too late to get in on the Internet frenzy? For most stocks, probably. After all, eBay has a long way to fall. Many analysts, like Merrill Lynch's Jonathan Cohen, think Net stocks are way overvalued, way too expensive to buy — he thinks Amazon should be trading at 50 — and soon headed for a major correction.
And Internet stocks trade in frighteningly wide bands — K-tel Inc. this year swung from 6 to 33 (and that's after a 2-for-1 split), back down to 6, up again to 32, and is now struggling to stay in double digits.
But there's a popular expression in technology investing — “This could be the next Dell.” During its 10-year life, Dell stock has soared over 40,000 percent, making it the best performing stock ever. It's hard to find any point when Dell was “cheap.” Five years after its IPO, in December 1992, its shares had jumped 750 percent. That lofty level no doubt scared away many investors. What did they miss out on? Dell has since jumped 5,000 percent. All that means $2,500 invested in Dell in 1988 would make you a millionaire today.
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