Amazon.Com Inc.
Dow Jones Newswires -- May 18, 1999
DJ SmartMoney: Regrets? They've Had A Few: While Their
Friends
And Family Strike It Rich, Prudent Investors Sit Out The Great
Internet Boom Of The Late '90s;
This story appears in the June issue of SmartMoney magazine. By Nkiru Asika Oluwasanmi
Keith Greenwald and Greg Offenhauser have a lot in common. Both live in Charlotte, N.C., both like to
bowl, and both are passionate about the stock market. But lately, their lifestyles have started to diverge.
Dramatically.
Greenwald, 34, paid off half the mortgage on his home last winter, then installed a deck, hot tub,
swimming pool, satellite dish and two circular driveways.
Offenhauser, 42, rents a two-bedroom apartment in town.
Greenwald and his wife enjoy winter vacations in Jamaica, skiing out West and rock-climbing trips across
the country.
Offenhauser struggles with child support for two kids.
Greenwald drives a BMW 325i, a Firebird, a Dodge Caravan and a Jet Ski.
Offenhauser has one car, a Jeep Cherokee.
What made such a huge difference in their lifestyles? It can be summed up in two words: Internet stocks.
Greenwald has been pumping money into hot names like eBay and America Online, racking up gains of
700 and 800 percent in his portfolio in just the past year or so. Offenhauser has, well, not. And truth be
told, it burns him more than a little. When he looks at the numbers and sees some of the huge runups he's
missed out on, "it's nauseating," he says.
Offenhauser may not realize it, but he belongs to a whole new class of investors
that's been created by the dot-com stock frenzy: the Internet have-nots. Lurking on the sidelines, these
frustrated stock pickers have done everything "right":
They know how ridiculous it is to pay 1,987 times earnings for Yahoo! or 43 times sales for Amazon.com
(because it doesn't even have any earnings).
They know that you should choose good investments and hold on to them for years, not mere hours.
They know the bubble will burst.
And they'll be proved right one day.
But for now, they're in a highly irritable state. Every time they wander over to the office watercooler,
every time they venture out of their homes for a dinner party, somebody's there carrying on about all the
money they've made on their damned Internet stocks.
We're talking about people like Texas oil-refinery operator Jay Sargent -- the kind of guy who will sidle
up to you and say things like, "Holding [an investment] for a year or two is just not exciting." Or like
Florida massage therapist Suzy Blaine, who recently closed on her first home, thanks largely to her
Internet winnings. She bought AOL the day after it split in November and made a $9,300 profit by
January. "Where else can you make $9,300 in three months?" she says with glee. "That's a lot of
massages!"
How does it feel to hear things like that when you're a rational investor who's been hoarding cyclicals,
say, or waiting for value stocks to come back into style? Not good, says Michael Datch, a Maryland
pediatrician who's shunned Internet stocks despite the friends, family and patients who've been urging him
to get in. "It's hard to watch people [getting rich] using a devil-may-care attitude." Adds Virginia
businessman Marc Shapiro, who recently got out of the have-not camp by trading AOL and making a
quick 300 percent profit: "I can only describe it as feeling like I was riding a merry-go-round of mutual
funds, going in slow, slow circles while the bullet train of Internet stocks whizzed by me."
Greg Offenhauser knows the feeling all too well. Every night when he gets home from work, he logs on
to a stock market game run on the E*Trade Web site. There, his "fantasy" portfolio is full of Net stocks
like AOL, CMGI and Infoseek -- and he's an ace at it. Not long ago, he doubled $100,000 in make-believe
money in just 30 days.
But he still can't bring himself to buy these stocks for real. "I have thought about it but never come close
to acting on it. It's a peace-of-mind thing," he says. "It's tempting to put money into something like eBay
-- a move like that could make you rich -- but if you don't have it to lose, it doesn't make sense." He
knows he's right and that he's the one who's investing intelligently, not Greenwald. But that doesn't make
it any easier. Concedes Offenhauser: "I feel like kicking myself in the butt sometimes."
It wouldn't be so bad if Internet investors could keep their success to themselves. But showing off --
intentionally or otherwise -- seems to be an inevitable outgrowth of their success.
When friends and family come to visit Becky Bechtel, an Indianapolis housewife turned Internet investor,
they can't help but notice the new kitchen floor, leather furniture, patio and landscaping she and her
husband, Larry, have bought for their newly redecorated three-bedroom home. And she might just
happen to mention to her visitors that she's on track to make enough on Yahoo! and Broadcast.com to pay
for college tuition for her two young daughters.
As you might expect, the newfound riches have caused some tension between Bechtel and other family
members.
"We've heard how much Becky and Larry have made," says her sister, Brenda Deese, "but I want to see
who has the most money when we're 65."
Bechtel's cousin, commodities trader David Underwood, can scarcely contain his contempt for her
investments. "If Becky does well, it has nothing to do with her ability as an investor or her market savvy,"
he says. "It will be luck and stupidity. She is not an investor, she is a speculator. Investors look at
fundamentals and market valuations."
Underwood tried talking some sense into Bechtel during a family picnic last July, when the market was
beginning to correct. "You need to pull all your money out for when the market takes a fall," he warned.
"There isn't going to be a crash," she replied instantly. "And even if these stocks went down as much as 50
percent, I'd still be making beaucoup bucks."
"Look Becky, I'm telling you, there's nothing substantial behind these stocks," Underwood warned her.
"There is always going to be a market for oil and for coffee and for wheat, but the wind will fall out of
these Internet stocks, and then what?"
"You've got to be kidding," she answered. "I'd never invest in that [commodities] stuff. The Internet
stocks are where I see growth potential up the wazoo."
Like Bechtel, Keith Greenwald is a devoted defender of Internet investing. For him, it's not enough that
he's doing it; he wants all his friends to join in, too.
Every Wednesday night at the Coliseum Lanes, Greenwald can be heard preaching the gospel of Internet
stocks to his fellow Astros bowling-league members. "There has never been a sector like the Internet," he
says. People talk about overvaluations, but "how can you say 300 times earnings is out of hand?" he asks.
"It might be out of hand for a giant bank like Chase Manhattan, but who says it's out of hand for an
Internet stock?"
Get-togethers at Greenwald's house feature more of the same. "It makes for a lot of fun when you are
drinking a beer or watching a football game and you start screaming and shouting [about investments]
across the room," he confides. And if you're on his e- mail list, forget about it. He's constantly sending
out electronic reminders to his have-not friends. "You've got to get out of those damned conservative
mutual funds and get with the real world," went one recent missive to his friend Darrell Kidd. "Buy some
AOL, some CMGI."
Kidd, at 47 years old, feels he can't afford to take the same risks as his younger friend. "That's gambling,
not fundamental investing," he says. Even so, he feels a pinprick of envy whenever Greenwald starts
going on about his latest home-run stock, and of course it's never fun to think about the money he's lost
out on by not following his friend's advice. Like the time Greenwald was bugging him to buy AOL early
last year. "I most certainly did kick myself," says Kidd. "I may not have told him, but I did."
When chad koppie hears about his son-in-law Robert Downing's daring Internet investments, it gives him
the creeps. He finds the Internet stocks "spooky" and doesn't hesitate to say so. One recent night after
Downing, his wife and her parents had all finished dinner, the conversation, as it almost always does,
turned to the stock market -- specifically, Downing's recent investment in Internet stocks. Knowing what
was coming, and having heard it all before, the women got up from the table.
"Why would you invest in things that are so high priced?" Koppie asked Downing. "Look at the P/Es --
it's crazy, it's like tulip mania."
"Yeah, it's ridiculous that companies are trading that high, but to me it's ridiculous not to give them a shot
if you can," replied Downing.
"But these are companies with no earnings, no resources; they don't sell anything," Koppie said, getting
more and more agitated. "They're just rooms with a couple of computers and phones in them and no real
assets."
"I know I could lose a lot . . . but I believe in the Internet."
Koppie finally had to just give up. Internet junkies like his son-in-law can't be reasoned with. "They think,
'Hey, it's out there. Why not enjoy the ride?'" Koppie says. "But they're playing with fire."
Part of the reason there's such a big disconnect between people who invest in Internet stocks and people
who don't is the fact that Internet investors are essentially fearless. They're so used to seeing stocks go up,
they assume it will go on forever. John Knott, a 25-year-old junior at the University of Florida, has
racked up enough gains in the past two years to pay for his entire college tuition. As he puts it: "These
days people are afraid of not making money, rather than afraid of losing it."
Well, not all people. Last summer, sitting across from his son in his living room, Jack Knott, John's
father, listened in amazement as his son laid out his grandiose plans for the future.
"I'm going to make $25,000 by the end of the summer," John told his father, with a completely straight
face.
"Why don't you concentrate on getting a summer job?" his father said with a disapproving look.
John's hackles rose. "I'm going to make a lot of money, I can see it," he snapped.
"Are you crazy?" his father cried. "Where do you get such fantasies? You'll be lucky if you make
$1,000."
But John showed him. By early July, he had exceeded even his own expectations, making almost $40,000
on his initial $300 investment. Not that the winnings eased Jack Knott's anxiety. "I was alarmed," he says.
"I had invested in stocks years ago, but I never made that kind of money."
Terrified that the windfall couldn't possibly last, Knott Sr. tried to convince his son to quit while he was
ahead. "You've got to take your money out of the market and just save it," he pleaded. "There is plenty of
time to make money in the markets when you graduate."
"No," said John. "This isn't luck. I am not stopping here."
Knott Sr. had that I-told-you-so feeling last summer. Continued troubles in Asia, the collapse of the
Russian economy and its ensuing effects on Latin America threw the U.S. market into serious disarray.
John's winning streak screeched to an abrupt halt.
Knott Sr. started getting frantic phone calls from his ex-wife, Monica, who had given their son her
$100,000 account to manage. Although he'd run it up to $175,000 in value, during the summer the
account slumped to $50,000. "My God, John is losing a fortune," she would wail. "I'm going broke."
"She just went bonkers," Knott Sr. recalls. "I was very frustrated and on edge because neither of us knew
what he was doing."
Knott Sr. called his son and demanded an explanation.
"She's just excited," he said. "It's all going to bounce back."
And sure enough, it did. When the market rebounded last fall, John made a huge comeback, restoring his
mother's portfolio and adding to his own gains.
"I don't understand it," Knott Sr. says now, shaking his head in disbelief. "Usually a father can advise his
kid. But when your child is twice as smart as you are about something, there is little you can do."
Just as in Las Vegas, the stakes of Internet investing have risen so high that when people lose out, the pain
can destroy personal relationships. Tom Contrino, a fashion photographer in New York City, bitterly
recalls the advice he received from a friend in 1993. Then a novice investor and an AOL subscriber,
Contrino began to watch AOL's stock price closely and considered buying $20,000 worth of shares.
Before he took the plunge he called up his friend, an investment banker, to ask his opinion.
"Are you joking?" the friend said, almost sneering. "AOL has no profits and won't have any until God
knows when. If anything, you should short the hell out of it."
Contrino didn't short the stock, but he didn't buy it either. Last May, he did the math. That $20,000
would have turned into $5 million if he had ignored his friend. Worse, Contrino could still hear that
patronizing tone in his friend's voice. "He was supposed to be an expert, and yet he made me feel like a
complete moron, an investment dummy. We no longer speak. I just struck him from my life."
Lots of Internet investors have learned to ignore the advice of professionals. Bill Weinberg, an attorney in
Hindman, Ky., has stuffed 60 percent of his portfolio with Internet stocks. But he's done it strictly against
the advice of Eddie Nicholson, his A.G. Edwards broker of 25 years.
Nicholson dutifully sends negative reports warning about the volatility of the Internet sector with little
handwritten notes: "It's madness. The bubble will burst." But Weinberg pays no attention. Nor does he try
to convince his broker that he's right. It wouldn't do any good. "I'm 65, and I'm not interested in having a
heart attack over these stocks," says Nicholson. "It used to be that price/earnings multiples meant
something, but maybe I'm a dinosaur."
Weinberg would never put it so unkindly. But, well, yeah. Maybe his broker is kind of a dinosaur. Says
Weinberg: "Brokers and analysts don't understand this market because it's never been like this before."
Mary Pugh will say amen to that. After her divorce in late 1997, the 49-year-old marketing consultant
called her broker at Morgan Stanley Dean Witter for advice on which Web stocks to buy.
"Mary, you've gone nuts," she says the broker, Jeremy Bean, told her. He convinced her to play it safer
with stocks like AT&T and Lone Star, a cement firm whose stock price has been falling lately. (Bean
declined to comment.)
Pugh deferred to Bean at the time, but after a few months, her patience ran out. "All the Internet stocks I
wanted to buy were going zoom, and all of his stuff was going nowhere," she complains. "It was like
watching paint dry."
So one day last fall, when her broker was on vacation, Pugh called Bean's assistant. "We sold all that crap
and went into the Internet stuff," she says. Among her purchases: Yahoo! and Amazon.com. Since then the
value of her portfolio has jumped from $381,000 to $1.2 million. Whenever Bean calls with a new
recommendation, she needles him with, "How's Lone Star doing?"
"I'm not saying go and put all your money in eBay," says Pugh, "but jeez, you've got to get in some way
or you'll be left out." |
