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To: KeepItSimple who wrote (30527)	12/20/1998 9:45:00 PM
From: Glenn D. Rudolph	Respond to of 164684

The Internet Capitalist SG Cowen Internet Research 14 (much) more complex rules followed in due course. Well just like the Flight 800 missile theory changed the media business, the Internet's democratizing effect has changed our business; like never before, individual investors are voting, in some cases paripassu, with their own bids and asks, up against a Harvard educated MBA with ten years in the business and managing $4 billion dollars. And the poor bastard from Harvard is losing. Worse, he's being made fun of on the stock chat boards at Yahoo! and Thestreet.com. So whereas the price of stocks used to represent the competition of information and understanding based on a well-known set of foundational rules, now another, entirely foreign (to most of us anyway) competitor, with his own set of rules (emotion and momentum seem to be guiding principles, though we're still in the dark on many of the others) has entered the fray. And he's having some influence on the market's efficiency in certain. (We have talked about the growing influence of day traders, particularly in the Internet sector, in the last edition of The Internet Capitalist, 12/04/98). From our perspective, the right question to ask ourselves is “Is this a structural element of the Street or is it fleeting?” We think the answer is self evidently that it is structural. Though the Internet sector has characteristics that act to magnify small investors' impact (a relative information vacuum, small floats, and large short positions), we do believe that this pedestrian element (for lack of a better term) will continue, in one form or another, for some time. And though we continue in our (perhaps stubborn) belief that valuations come down to the quality and consistency of cash flow or earnings (and not stock splits), we should all be aware that the Street just isn't the same Street anymore, that more than a handful of smart folks have stubbornly refused to accept this, and that they have paid a price that is, literally, in the billions of dollars. Right or wrong, emotion or not, all of us are dedicated to the goal of determining how shareholder value accrues to companies and determining patterns from those observations. If the rules are changing, it behooves us to, at least, understand that fact. After all, lots of smart folks were shorting Japanese stocks in the mid 80s, comfortable in the notion that their rules were the right ones and that history would come their way. It did, eventually, but not before they watched their assets go out the door. There's a lesson somewhere in there; if you find it, let us know. The NASD Tilts At Windmills We greeted news that the NASD is seeking a longer pre-trading period before an IPO (read: Internet IPO) starts its initial trading with a slight chuckle. Not because the NASD has taken on the unenviable task of controlling the uncontrollable or because their solution will probably have zero impact on the actual trading mechanics of an Internet IPO, but rather…no…actually those are the reasons we chuckled. The actual announcement, that the pre-trading pricing period for initial public offerings is being extended from 5 minutes to 15 minutes, with an additional 15-minute delay in trading if the market appears as though it's going to open in a disorderly state, may be the right first step for the NASD to take to make the market for these stocks more efficient (regular readers will recall that we say with some frequency that the Internet stocks are the most inefficient stocks in the market). But in reality, it is just that, a first step, and almost assuredly doesn't address the heart of the problem, that demand for these offerings vastly exceeds supply. Timing (especially 15 minutes of it) probably won't help sate demand much.