Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: im~ristine who wrote (64823)	6/27/1999 4:04:00 PM
From: KeepItSimple	Read Replies (1) \| Respond to of 164684

> you have a mirror? Read my thread- shorting common shares is both expensive and hard to do- many times you'll find it impossible to short shares when the stocks are busily tanking.. And you're vulnerable to getting killed if they spiked up. (something that will likely never occur again, though) I started the thread so individuals with little to no experience with options could profit handsomely through exact recommendations with ticker symbols, etc..

To: im~ristine who wrote (64823)	6/27/1999 4:44:00 PM
From: Glenn D. Rudolph	Respond to of 164684

Article 2 of 200 Investment Columnists The Contrarian Internet myth and reality BY David Dreman 07/05/1999 Forbes Page 230 Copyright 1999 Forbes Inc. "YOU ARE A DINOSAUR," a reader writes, "who simply doesn't understand the enormous promise of the new technology stocks, particularly those on the Internet." A Tyrannosaurus Rex I may well be, but one who uses the Internet daily for a wide range of tasks, as well as being aware of dozens of others it can perform. What I don't understand is the colossal valuations placed on these stocks relative to even the most optimistic analysts' estimates of future earnings. Which side of the debate you choose could have a major impact on your portfolio in the months ahead. Divide the Russell 2000 index, the most widely followed small-cap barometer, into two components: the 10 largest stocks by market value and the other 1,990. The return on the 1,990 companies (adjusted for market weightings) has averaged a paltry 6% per year over the latest 31/2 years. These risky small caps provided about the same payback as T bills. And this is through one of the most sizzling periods of the century for the big stock indexes. The ten largest caps, on the other hand, averaged a 90% annual return. There is, to be sure, something of a self-fulfilling nature to this statistical exercise, since the ten are largest in market cap now precisely because they have soared in recent years. But you can't fail to agree that there is something extreme about this corner of the market. The top ten are almost entirely Internet stocks including E- Trade, CMGI Inc., Excite, Ameritech, Doubleclick and Lycos. Together the top ten companies, which have a total value approaching $70 billion, managed to lose $1.1 billion in the last 12 months. This is a microcosm of what is happening across equity markets today. Internet stocks are trading at prices that anticipate earnings growth that is unparalleled in financial history. True, this technology is staggering in its promise, but will the current crop of Net companies be staggering in their profitability? I think the odds are highly against it, even if the Internet lives up to the expectations of its most enthusiastic supporters. The truth is that cutting-edge technologies take many unforeseen twists that often obsolete the early industry leaders. New markets emerge out of nowhere, dominated by new companies that dwarf, or knock out entirely, the current leaders. (How are you doing with those computer time-sharing stocks you bought in 1969?) Sooner or later, markets growing at an enormous clip for which investors pay hundreds of times earnings, or huge multiples of revenues, slow down. For each industry leader there are dozens of me-too companies--also bid up to astronomical prices--that have mediocre business plans, hemorrhage red ink and have little hope of long-term survival. Has it happened before? Go back no further than the early 1980s, the beginning of the PC revolution, for an answer. Scores of PC companies went public, and prices soared in a great bubble that ended with the technology crash of 1983-84. Although PC unit growth continued at a better-than-25% annual rate for almost two decades, only one participant in the original PC boom, Apple Computer, survives today, and it's marginal. Dell and Compaq, the largest current players, both developed after the PC bubble burst. And Microsoft itself, which dominates PC software, only went public near the end of the original boom. The same was true of the automobile industry in the 1920s. Even the most wild-eyed bull could not have foreseen how much the automobile would change our way of life. Yet from the scores of auto stocks in the 1920s, only a handful were alive two decades later. Will the Internet stocks be any different? The entry barrier is far lower than it was for the PC or the automobile industries. Where else could a college administrator with only a few thousand dollars set up a Web site (positively-you.com) and go into competition with Amazon .com? Or a high-profile money manager offering on-line advice and research (TheStreet.com) bring out an initial public offering with a first-day capitalization of $1.7 billion, although the company is estimated to lose $30 million this year? Don't confuse revolutionary technology with enormous profits. If you do, you will be sitting on enormous losses when the current Internet bubble plays out.