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: 16yearcycle who wrote (49531)	4/8/1999 10:51:00 AM
From: Sarmad Y. Hermiz	Read Replies (1) \| Respond to of 164684

Eugene, By your way of looking at things, is the move up for yhoo over for the short-short term ? They reported the e, no big excitement. Can they have any positives other than split ?

To: 16yearcycle who wrote (49531)	4/8/1999 10:55:00 AM
From: H James Morris	Read Replies (1) \| Respond to of 164684

>>OK, when then? I need to know.<< E, if you need to know, please ask Mary Meeker. She's the prophet, not me. Trust me on that. Ps Why are you guys asking me. Here's another one to ask. Ask Forrester Research. They're the ones that know so f-----g much.

To: 16yearcycle who wrote (49531)	4/8/1999 9:23:00 PM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

The Epicenter – 8 April 1999 4 have little to do with precise projection and valuation of future cash flows (including actively putting your money where the growth is or defensively moving it out of harm's way). For several reasons, moreover, we believe that even when viewed through the lens of a more rigorous valuation framework, the stocks are worth more than a casual observer might think. These reasons include: 1) that no one knows with any degree of certainty what the future cash flows will be or what the real risk associated with them is (the leading companies have been blowing away expectations from the get-go); 2) the potential for unprecedented returns on invested capital, which will ultimately equate to higher P/E multiples), and 3) benefits from the “network effect,” through which franchises are made more valuable and sustainable with every new customer or supplier they add. With these types of investments, we would argue that it is a mistake to be too conservative in projecting future performance. Yahoo!'s valuation is ridiculous, right? Well, if you believe the projections that suggest that Yahoo! will earn $0.47 next year, it looks pretty ridiculous, yes. Yahoo! has dusted estimates for the last ten quarters, however, so it seems likely that the $0.47 might be conservative. How conservative? We don't know. But consider the following: When Yahoo! went public, it looked like the biggest joke in history—a list of web sites with $1 million in revenue and a $1 billion valuation. Investors the world over (understandably) crowed about manias and insanity, but Yahoo! was actually trading at an absurdly cheap 10X Q4 1998 annualized earnings. Investors who failed to ask themselves two questions—1) how big the company could actually be, and 2) how fast it could get there—missed the boat. With these types of investments, we would also argue that the real “risk” is not losing some money—it is missing much-bigger upside. Investing in hyper-growth stocks is not about preserving capital (that's what bonds are for); it is about making sure that you are on board the train if and when it leaves. If you are long any equity and if you are one-hundred percent wrong and the stock goes to zero, you can lose 100%. When the long-term upside is only 20%-30%, 100% is a disastrous loss—and the risk/reward ratio is poor. When the upside is 300% or more, however, the possibility that any individual investment in a balanced portfolio will to zero isn't as bad. We do not entirely agree with Alan Greenspan that buying high-quality internet stocks is like buying a lottery ticket—we don't believe the odds are that bad—but we do agree that many skeptical observers of the sector have the wrong mindset. We would argue that in this sector, the real “risk” is not that you lose money if the sector corrects, it's that you miss a potential 3X-10X upside. Whether or not the stocks are “overvalued,” we do not believe that valuation alone will bring them down. The most obvious characteristic about internet stocks is that they seem frighteningly expensive by classical measures—but this hasn't stopped the best ones from appreciating 10X-20X from what were already stratospheric levels. General market pullbacks and sector boom-and-bust spikes aside (“volatile” ain't the word), we do not believe the market is going to wake up one morning and decide to jettison the internet stocks “because they are overvalued.” We believe that the broad-based internet mania will end when the fundamentals at the leading companies stop improving, and it is because we don't believe this will happen in 1999 that we are recommending the stocks. We believe that what will be left when the gold-rush finally subsides are a few fast-growing companies with huge market capitalizations—and a lot of tulip bulbs. This is one reason why we recommend investing the majority of an internet portfolio in the sector leaders; all internet trees will definitely not grow to the sky. When the leading companies finally start missing numbers (or, more likely, when estimates stop going up), we think the sector's multiples will contract significantly. The risk of waiting until this happens before investing, however, is that there may be major upside between now and then, and the “corrected” valuations might be compellingly higher than today's. In our opinion, when the internet stocks finally look cheap, they won't be worth owning anymore. It's possible to be too conservative. Focus on the reward side of the risk/reward ratio. When they look “cheap”, don't own them.