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Strategies & Market Trends : Roger's 1998 Short Picks
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To: Oeconomicus who wrote (16982)1/13/1999 5:13:00 PM
From: BelowTheCrowd  Read Replies (1) of 18691
 
> the internuts represent a couple hundred billion of market cap.

One thing to remember is that the "market cap" of most of these companies is really only theoretical. The vast majority of the shares are held by original investors or insiders who are not selling. Most of those gains have never been recognized by their owners, even where the owners are large institutions.

What this means is that the number of shares subject to margin calls or catastrophic REALIZED losses represents only a fraction of the reported "market cap." Most of the inside holders would still be well ahead of the stocks dropped 75%.

Of course, this just highlights the fact that if those shares suddenly DID come to market, the price drop-off would be tremendous, as supply suddenly exceeded demand.

The current valuations for internet stocks is kind of like the valuation of a bottle of water in the desert. It's worth whatever you've got to spend on it. But that doesn't mean you value the entirety of the world's oceans based on the same marginal cost.

The traditional idea of a "market cap" presumes that a high percentage of the shares are traded openly, that supply and demand can balance out, and that all the various types of "squeezes" don't exist. It is pretty useless in determining the value of a company like AMZN, where purchasers are effectively bidding on the price of a drop of water in the desert.

(With one key difference. The liklihood of a desert suddenly being flooded is almost infinitesmal. However, any of the big investors in any one of these internuts could suddenly decide to sell. Wouldn't be too good for people who bought on margin at the top, but even all the "public" shareholders together are a drop in the bucket, representing a small fraction of the theoretical "market cap".)

mg
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