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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Lars who wrote (6703)	7/11/1999 4:05:00 PM
From: Carl R.	Read Replies (1) \| Respond to of 15132

The four phases of a business, paraphrased from H.S. Dent, "The Great Boom Ahead": 1. Innovation - the birth phase, typically a period of low profit or negative cash flow as the product gets off the ground. The product seeks to become viable and low enough in cost to sell. 2. Growth Boom - The niche product moves into the mainstream, and growth is dominated by Early Majority Buyers. It is generally a time of high margins and high growth, which attracts a competitive entry of a lot of businesses, and is like a barroom brawl with rapid growth, continual incremental innovation, furious competition and fat margins. But as growth progresses, economies of scale and brand awareness advantages grow, so smaller and less efficient firms find it increasingly difficult to compete. 3. Shakeout - At the top of the growth boom most businesses add capacity as they seek market share and domination, leading to a cataclysmic price war, causing the weaker firms to fail. It is economic Darwinism, and is marked by high failure rates, cutbacks in spending, and layoffs. Meanwhile additional innovation takes place allowing the products to expand into new markets. 4. Growth Boom - When spending resumes, the larger surviving competitors bring the prices down moving them into mass markets until full saturation. Only a few gentlemanly firms tend to dominate each market. For example in the auto industry there were 200 companies coming out of the innovation phase, but after the shakeout there were only a handful left by WWII. In the case of internets, one could argue that we are still in the innovation stage. While the current situation bears some of those characteristics, the internet is already becoming a mainstream market, and thus in my opinion has entered the growth phase. That is also confirmed by the rapid number of new entrants into the market. The one thing missing is the fat margins. In my opinion, due to the rapid rate of adoption, the internet has progressed rapidly from the innovation phase to the growth phase, and with the number of new entrants, is preparing for the shakeout phase. Because of the rapid rate, the characteristics of all three are present. Because all of the players are armed with a big pile of IPO cash, this blending is likely to continue. The most likely scenario in my opinion is a long, gradual shakeout which will last a year or more. During this time the losers will begin to drop out one by one, and the winners will be bloodied in the process. Within a year, though, we should begin to identify the eventual winners, setting the stage for the eventual, profitable growth Boom. Based on this projection, I believe that the indexes will trend sideways to down for awhile as losers drop, and winners can not rise enough to carry the index. It may well culminate in an eventual strong selloff, followed by a very long, steady, very profitable rally for the survivors. When it reached this stage the auto industry had a 90% selloff, as did the radio industry. Carl