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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: MrGreenJeans who wrote (3062)1/28/1999 9:08:00 PM
From: MrGreenJeans  Read Replies (1) of 15132
 
INTERNET: Stocks are wildly overvalued

From the Financial Times 1/29

It is a truth universally acknowledged - now even by Alan Greenspan - that internet stocks are wildly overvalued. But the inevitable correction could do more than separate the real from the fool's gold. There is a correlation between the internet stock bubble and the popularity of internet trading by retail investors. Both could suffer when the bubble bursts.

In the last quarter, 25 per cent of US retail stock trading was on the internet. Such trading is disproportionately concentrated in about two dozen technology stocks, most of them illiquid and highly volatile. Some brokers have increased margin requirements and at least one firm has stopped making markets in the most volatile stocks. A National Association of Securities Dealers committee is looking for ways to deal with the volatility and now the Securities and Exchange Commission has warned online investors to take care.

Nonetheless, when the correction comes, inexperienced retail investors, used only to rising prices, are bound to cry foul. If an internet stock crash leads to a broader market fall, internet trading could end up carrying the can, just as programme trading did in 1987. In the long term, the benefits of internet trading - greater access and lower costs - are highly desirable. But safeguards to ensure an orderly market, such as minimum float sizes, are needed. And preferably before rather than after a backlash.

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