Glenn, I suggest you read this. It only confirms what Jan was telling us months ago. Too many ticket buyers, and not enough seats.
Do you think that the elephants knew that all along? If they did! That would explain why they jumped in, and controlled the float, last May.
If I'm wrong. I guess you could just put it down to dam good luck Internet stocks soar toward the Twilight Zone' Ann Perry Personal Finance
Ann Perry
Staff Writer
January 17, 1999
all space beyond the sphere of the moon and making up the stars and planets.
Prices of ethernet, I mean Internet, stocks are soaring. Lately, they appear like comets in the sky, blazing fiery trails.
And though they have no earnings -- and no prospects of such for a long while -- investors are willing to pay $100, $200 or more per share.
Long-time money managers, used to calculating a company' s worth with such down-to-earth measurements as price-to-earnings ratios or dividend yields, shake their heads in amazement. Who would have thought?
Not I, certainly. But then I never thought my 11-year-old son would buy a Christmas present via the Internet for his younger brother, a lovely Rat Gift Basket, from a nice lady in Kentucky.
The Internet is so new, and so powerful, that I think it will continue to astound us for some time.
No, I' m not about to invest the kids' college money in the first online eRat venture. But neither do I feel comfortable attributing the runup in Internet stocks solely to unbridled greed.
Many of these investors appear to be computer-savvy believers in the future of Internet commerce, willing to test the boundaries of a new frontier.
One such investor, I' ll call him Doctor No. 1, works at a major medical center in Southern California and put some of his money down early on eBay, the online auction company, and on America OnLine, before the stock split twice.
His online holdings now make up nearly 20 percent of his $1 million portfolio of growth stocks, which include such corporate giants as Coke, General Electric and Intel.
Dr. No. 1 is the first to concede that "there' s no justification to buy these Internet stocks. All the principles of investing are out the door."
However, he points out that it' s difficult to value a company that does business on the Internet because it can reach a potentially vast market so quickly.
It took Coca-Cola decades to develop its world market, the doctor notes. Yet, he says, "eBay can trade all over the world in one week' s time."
His colleague, Dr. No. 2, owns 100 shares of AOL, purchased at $109 before it split. AOL now trades above $160.
Dr. No. 2 thought it was reasonably priced when he bought it. "I use AOL," he says. "I have a comfort level."
Now that his holding is worth several times what he paid for it, it all seems a little surreal. "Three to one odds. The only other place you can get this kind of return is Las Vegas." he says.
Why not sell then?
"With analysts saying AOL will reach $200 a share," says Dr. No. 2, "who' s going to get out now?"
Rather than encouraging people to get out while they can, the price runups on some stocks seem to give investors a peculiar comfort.
Jack White, founder of Jack White & Co, the pioneering discount brokerage firm, says some investors, who have made their money back several times over, believe they' re now investing "on someone else' s dollar. ' I have no risk.' That' s the mentality."
The bubble in Internet prices is also a function of too many investment dollars chasing a limited number of assets. "I don' t think these people are dumb," he says. "It' s the expansion of money.".
Tinkering with Internet stocks is only appropriate for those who can afford the potentially sizable losses, White says. "For people who can' t absorb the risk," he says, "to play the game now would be very, very dangerous."
Especially at such lofty prices.
But it' s those big gains that have prompted clients to call Henry E. Zapisek, a certified financial planner and money manager in San Diego, and inquire: "Shouldn' t we be buying Internet stocks?"
"I say, ' No,' " Zapisek says, adding that the clients seem to find comfort in his answer. "I think they probably needed to hear that. My feeling is that the bubble is going to pop."
Some Internet investors have tried to protect themselves by placing a "sell order" on their shares. The order instructs a broker to sell the shares should they rise or fall to a certain price.
In a major selloff, however, prices might fall below the sell point even before trading starts, investment experts say.
Some investors could be in for a shock should they decide to take their profits. Taxes on short-term gains (for stocks held less than one year) can be much higher than on long-term gains (held more than one year).
While long-term gains are taxed at the capital gains rate of 20 percent, short-term gains are taxed as ordinary income, which can run as high as 39.6 percent.
Brian D. Lowder, an investment manager and certified financial analyst in San Diego, has clients who work in high-technology industries and are eager to invest in Internet stocks. But he won' t include these volatile stocks in the portfolios he manages for them.
"I' m the manager of people' s money who expect it to be there for retirement," he says. So he helps clients decide what discretionary money they can afford to risk and has them set up a separate account that they manage.
One investor recently traded 45 times in one month, holding stocks for a day or two and making a $2 to $10 profit per trade.
Lowder says the Internet frenzy reminds him of the stock market hoopla that accompanied the legalization of riverboat gambling or certain advances in biotechnology. "There will be a closing curtain," he says.
He acknowledges that the Internet has huge commercial potential, but insists that the prices for these fledgling companies are just too rich.
"It' s the same thing as paying $25 for a Big Mac," he says. "Yes, someday we' ll pay that." But that' s just too pricy now.
Unless, for course, the Internet changes the pace of time. And there' s some evidence for that, believe it or not. Those who work for fast-paced Internet companies say that one year of time for an Internet company equals seven years in real time.
But for those not comfortable with the volatility of Internet stocks, there are less risky ways to invest in the growth of e-commerce.
Dr. No. 1, for example, recommends considering companies that will support this marketplace, such as package delivery services like FedEx.
White says that investors might want to look hard at successful off-line vendors such as Wal-Mart that could make a big wave for Net surfers soon.
And, keep in mind that you can probably cut your investment costs by doing your trades on the Internet itself.
Just 10 years ago, individuals had to go to a broker or an investment adviser to purchase a stock. With the Internet, White says, "You' re taking all the middlemen out."
That could turn out to be priceless. |
