And speaking of dreams ( and certain future nightmares) - from today'sWashington Post .....
<<
Red-Hot Net Stocks Are Feeding Their Own Fever
By Jerry Knight
Washington Post Staff Writer
Monday, January 18, 1999; Page F07
One of the great myths of the Internet is that it will make markets more efficient.
The prevailing wisdom of "Net-heads" is that providing blindingly quick communications and universal access to troves of information will create a global village marketplace in which there will be no need to haggle over prices because buyers and sellers will know what everything is worth.
The argument continues that because of the Net, markets will become transparent -- prices will reach instant equilibrium and competition will approach the theoretical purity taught in economics courses.
If you believe that, nerd, I've got a hot Internet stock to sell you.
The Internet is pumping up one of the greatest speculative bubbles since Europe went gaga over tulips in the 17th century.
Internet stocks are demonstrating that the Net, in reality, simply accelerates the processes that have produced market manias and crashes since trading began. The Net fuels its own fever when investors use it to buy Internet-related stocks.
If you bought silver along with Nelson Bunker Hunt when he was on his way to bankruptcy court in the early 1980s or invested in office buildings just before the real estate market crashed in the early 1990s, this is the time to get into Internet stocks.
Stocks of Internet companies, by the most remote stretch of the definition, have climbed so high so fast that triple-digit annual gains are considered commonplace and the highest flyers are knocking on the four-digit door.
Network Solutions Inc. of Herndon, the region's No. 1 "Netrocket," is up 900 percent over the past year and that's after a 70 point "correction" in the past few weeks. America Online Inc. of Dulles is up 500 percent even after its recent $20 pullback.
The Internet Stock Index (www.Internet.com) is up about 240 percent in the past 12 months and up more than 10 percent in the first two weeks of the year.
The Internet mutual fund that was started Nov. 16 by Monument Funds Group of Laurel (www.Monumentfunds.com) was up 66 percent in its first two months of business.
"When you go up that much right away, that's a tough act to follow," said Monument Funds President David Kugler. "We're taking about 150 calls a day."
Investors have poured $3 million into Monument's Net fund. "We have not had any significant redemptions so far," Kugler said.
Kugler's view is shared by millions of investors. "The Internet is the future," he said. "It's like the steam engine. It's like electricity. It's a driver."
The history of the steam engine and electricity is that many of the pioneers in those technologies went broke. Internet investors don't like being reminded of this. To them, "history" consists of facts that can be found on World Wide Web sites, few of which go back more than 10 or 15 years.
But that ought to be far enough back to learn the lessons of the real estate crash and the silver market collapse. The lessons include the danger of believing in your own hyperbole and folly of piggybacking on yourself.
The silver market went crazy in the 1980s as investors used silver to buy more silver. The Internet market is going crazy because investors are using the Internet to buy Internet stocks.
While comparatively conservative Net investors such as Kugler and Keith Benjamin, the Internet maven at BancBoston Robertson Stephens in San Francisco, stress long-term investing in companies that are market leaders, that is not what's driving Net mania.
Only an Escher drawing could fully illustrate what's happening. Online investors, who sit in front of personal computers and scroll through electronic investor bulletin boards, are investing in companies because people just like them are promoting the virtues of investing online and in Internet stocks.
Net investors are not only using the Internet to reinforce their view that the Net is useful, they're using the Net to invest in the very Net companies they're using: Log on to Yahoo! and read what a wonderful investment Yahoo! is. Click the button to invest electronically through E-Trade Group Inc. and then buy E-Trade stock.
The latest example of this feedback loop occurred Friday in the initial public offering of a California Internet company, MarketWatch.com. The company, founded jointly by CBS and Data Broadcasting Corp., runs the Web site www.CBSMarketwatch.com, which was chosen by Barrons as one of the best Internet resources for investors.
MarketWatch.Com went public at $17 a share, opened at $90, jumped as high as $130 and closed at $97.50.
In the interest of full disclosure, I must report that the president of MarketWatch.com, Larry Kramer, is a former Washington Post editor and an old friend. And while I like to see my friends succeed, a 473 percent gain in one day and a market capitalization of more than $1.1 billion is a lot for a company that had revenue of $4 million in the first three quarters of last year. Don't even ask about a profit -- after all, it's a Net company.
Though there is something surreal about Internet investors bidding up the IPO of an Internet investment company, the performance of MarketWatch.com was totally predictable.
There are only a limited number of Net stocks, so investors are constantly looking for new ones. MarketWatch.com was the first significant Internet company to go public this year, and investor Web sites were full of chat about the IPO.
The home run IPO, after all, is the Holy Grail of investors. The chance to brag, "I got into MarketWatch at $17," or "I bought Network Solutions at $18," is a powerful lure.
And the Net stands ready to satisfy investors' demand for Internet IPOs by letting them buy those IPOs over the Internet. The lead underwriters for MarketWatch.com were Baltimore's BT Alex. Brown and New York's Donaldson, Lufkin & Jenrette, which brought in its online subsidiary DLJDirect Inc. and Wit Capital Corp. to offer some shares over the Internet.
Institutional investors usually buy most of the shares of new offerings, for the simple reason that it used to be more efficient to pitch a company to a couple hundred money managers than to explain its finances to thousands of small investors.
The Internet changed all that, making it far easier to reach individual investors. Unfortunately for them, the vast majority of individual investors are significantly less skilled than professional managers at determining what stock in a new firm ought to be worth.
Institutional investors will argue with investment bankers over whether a stock is worth a dollar or two less than the company wants to sell it for. Individual investors will put in orders to buy a hot IPO at any price. Institutions recognize that IPOs are so risky that it's important to diversify and invest in a variety of them. Individuals think they can pick the winners.
Those eager investors already are salivating over E-Trade's announcement last week that it will form an investment banking firm that will offering IPOs over the Internet. E-Trade's stock jumped $12 a share to a record high of almost $101 Tuesday when it announced the partnership with Walter Crittenden, a founder of the California brokerage firm Crittenden Roth, to underwrite IPOs in the $30 million to $50 million range.
A little research on the Internet might cool investors' ardor for IPOs and E-Trade's investment banking firm.
Of the 52 IPOs by companies in the District, Maryland and Virginia during 1997 and 1998, 25 were selling below their offering price last week, 25 were up and two were essentially unchanged, the Bloomberg News database shows. IPOMonitor.com reports that the average 1998 IPO by Crittenden Roth is trading 20 percent below its offering price.
E-Trade's spokesman brushes aside the suggestion that investing in IPOs might not be a good idea for individual investors. "We definitely believe our customers want and deserve access to this important part of the marketplace," the spokesman said.
That's probably right on both points. Internet investors want it. And they deserve what they get. |
