Internet Fund, up 100% this year! Of course CMGI is one of the main positions...
Ryan Jacob of The Internet Fund
theinternetfund.com, provides the
following interview with Mark Johnson, Editor
of the Internet Financial Connection.
AudioInvestor.com provides an audio version
of the interview. Click the link below
audioinvestor.com
if you would prefer to listen to the interview.
Below is the write up.
Q: Many of the Internet stocks significantly
corrected and then rebounded. Is this rebound
real or just a head fake?
A: I think we are seeing a continuation of the
frenetic activity that has been a common place
within this sector.
Q: Do you have any predictions in the short for
Internet stocks?
A: In the short term, it is impossible to predict
price movements. Longer term, the fundamentals
always win. I think the burden is on the individual
or the manager to select those names that offer
long term prosperity.
Q: Why are the Internet stocks so volatile. Is this
volatility here to stay?
A: Yes, I do think this volatility is here to stay,
as long as many of these companies are currently not
earnings positive or cash flow positive. It becomes
very difficult and subjective to ascertain
fair value.
Q: I recently read that your fund is up over 100%
since January 1st, 1999. Is this true?
A: Yes, that is correct.
Q: How do you go about selecting stocks into your
Internet fund?
A: We look for companies that will benefit the most
from the growth of the Internet as a medium or
distribution channel. We are looking for companies
that will benefit from the strong macro trends of
more people coming online, spending more time and
transacting more online for goods and services. We
are looking to invest in companies that are either
leaders in their respective industries or have the
potential to achieve leadership status.
Q: What are some of the macro trends you just
mentioned. Could you comment on them?
A: I don't think anyone will dispute the fact we
will have more people coming online, spending more
of their time, and eventually transacting online
more, not only here in the U.S. but also abroad.
As we see the emergence of the Internet as a true
mass market medium, all of these metrics should
continue to see robust growth.
Q: Obviously, the number broadband or high speed
Internet access users is going to increase
significantly over the next few years. What
companies will benefit from that?
A: We are big believers in the prospects of cable
systems to establish that leadership status in the
broadband area. We are very positive on @Home
(ATHM 142 1/2), which could be one of the biggest
beneficiaries. We are also positive on some other
companies that may supply some of the
infrastructure like Broadcom (BRCM 72 1/2) or
Inktomi (INKT 122 3/4). It will be interesting to
see how many other competing broadband services
enter the market and look to establish positions
but, right now, I think it is pretty clear that
cable is sitting in the drivers seat.
Q: Lets talk about the Internet brokerage stocks.
Some of these stocks like; Siebert Financial
(SIEB), Ameritrade Holding (AMTD) and E*Trade
(EGRP) literally see 20% price swings in a single
day. What is going on in that area?
A: This has been an area that we have stayed away
from. We have been concerned with customer
acquisition costs and the sustainability of their
models long term, given these high spenditure
rates. I think we are seeing a lot speculation with
these stocks and investors have to be careful.
Q: You have stayed away from these online brokers
firms?
A: That is correct.
Q: Have you ever owned any of them during the past?
A: No.
Q: If they corrected maybe 50% or 75%, would you
begin to look at some of them?
A: It is tough to say. We have some underlying
fundamental issues that are not price related. Again,
most of these companies tend to show their most
robust growth when they are spending more in
advertising and marketing. When they take their foot
off the pedal in that regard, growth slows
dramatically. That is not the kind of model that we
find attractive.
Q: Ryan, you did touch base with some of the stocks
in your fund. Could we talk about some of the key
holdings in your fund? What are some of the favorites
that you like?
A: Some of the companies that make up the core of
our portfolio include; Yahoo! (YHOO 175), DoubleClick
(DCLK 147), CMGI Inc. (CMGI 239 3/8) and Excite
(XCIT 143 5/8) (which at this point is @Home) and
eBay (EBAY 215).
Q: Could you elaborate why you like each one of
those companies?
A: Each of these companies, except CMGI is either in
a solid leadership position or fast approaching a
very strong leadership status. Longer term, they
provide not only exceptional growth but decent values
at current price levels.
Q: How many stocks do you have in your mutual fund?
A: Currently we own 30 to 35 names. We are fairly
concentrated as funds go and that is by design.
Q: Ryan, let's talk about some other stocks that you
like in your mutual fund.
A: I can mention a few other names that we think are
not getting as much attention from the street that
we are still very positive on. Those would include
TMP Worldwide (TMPW 62 1/4), which operates the
Monster.Com jobs web site. Also, we are very
positive on XOOM.com (XMCM 71), which is offering
a variety of community and other commerce related
services. Also, theglobe.com (TGLO 55 3/8), which
has established a niche among younger and more of
an international audience of community.
Q: What about Internet IPOs? Do you invest in them
and can you offer any advice to people who are
buying them?
A: We participate in IPOs to a limited degree.
However, for individual investors, it is very
difficult to get shares at the initial price and
buying in the after market can be very dangerous.
Especially, given the substantial premiums, we have
seen in the first day of trading.
Q: Would you tell investors to stay away from
Internet IPOs in the aftermarket?
A: I think investors have to be very careful. Over
the past few months, it has been more prudent to
wait until after the initial period of trading for
at least a week or 2 before considering purchasing
a new Internet IPO.
Q: What trends do see going forward in the Internet
space, anything you would like to share in that area?
A: I do believe the Internet is defining itself as
a mass market medium. As we see convergence occur
between the Internet and tradition broadcast
television and other broadcast mediums, the companies
that stake claims early will have the best
opportunities to capture a significant market
position. Clearly, many of the companies that we own
today are staring at enormous market opportunities
and it will be up to the management teams to execute
in their business plans, in order to capture a slice
of that market.
Q: Generally speaking, is there anything you would
like to add about the Internet?
A: I think we covered all of the basic points.
Q: Let's talk about your mutual fund. When was your
fund established?
A: Our fund was established in 1996. I came on as
portfolio manager in December of 97'.
Q: What are some of the goals within your fund?
A: I think we have the same goals of any mutual
fund and that is to provide investors with the best
returns possible, with a limited degree of risk.
Although, in this sector, clearly it is much higher
risk than you would find with traditional equities.
However, we think the possible returns more than
compensate investors for that risk.
Q: Thank you Ryan for taking the time out to do
this interview.
A: No problem Mark, take care! |
