It is just ridiculous that people consider those stock certificates as ends of themselves. They never expect to see profits - they just expect to sell the shares to someone else later at a higher price. Why will that person pay a higher price? Because they think someone else later will pay a higher price. Generally, the term ‘correction’ refers to a drop of 10% in stock valuation. When these internet stocks get corrected for real, it will be on the order of 95%. Instant millionaires will be instant welfare recipients.
The balloon will pop for many of these stocks, some day. I just own a few Nokia stock. I hope their internet affair does not eat up the company.
- Nokia, what a joke. Now, don’t spread it around, but I know a guy who sells tulip futures. . . let me know what you can lay on the table and I’ll see what I can do for you. - MC
I don’t have any stock, but then I sleep better at night.
During the gold rush, the people who got rich weren’t the prospectors. The people who got rich were the store owners, laundries, banks, etc.
If you want to speculate on internet stocks but on a ‘safer’ level, I’d suggest that you invest in the high-tech equivalent of the laundries and stores - that is, the infrastructure that makes it all happen. Cisco, Federal Express, large computer manufacturers, blue-chips like IBM, Northern Telecom, etc. These companies will all grow with the internet, and will be successful no matter how the final online economic landscape settles out.
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- Sorry guys, the tulips went to crap. Send me all your money. - MC
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The whole Internet stock thing GENERALLY works on future promise. An Internet company is valued on the basis of such criteria as:
-assets including hardware, stock, human resources
-Market capitalization
-“eyeballs”, traffic, members
-Investor reports
A publicly traded company can’t simply issue new shares and increase their value. Issuing shares actually dilutes the current value of a company.
In addition, there are strict regulations that must be met before any company can go public. And, because Internet companies are based on the potential of future earnings, reading the filing for IPO of a company like CommTouch, for example, makes you want to cry. You’ll feel sorry for them, because they keep explaining how they are losing money and how they will most likely lose money for a while.
But that’s the law. In addition, if you are an Internet company you don’t want to be too profitable to start with–that would actually hurt your interests!
The fact is that most Internet technology companies are over-valued. Investors usually know next to nothing about IT companies they invest in. They don’t do any research, they just try to predict which company is going to be the subject of loud noise, positive media coverage, and hype. So it’s this indiscriminate investing that is actually driving the price of IT stocks up into the stratosphere.
Some companies definitely deserve to be traded at high values, but I still feel like being physically sick when I remember that Hotmail was bought by Microsoft for 400 million dollars. Hotmail has always had an inferior product, so how did they rake in that much? They weren’t selling Hotmail, they were in effect selling their 9 million users. That’s because with a user base that broad you can market stuff to the users. You say, “I have an audience of 9 million, want to advertise on my medium?” Same as television.
Amazon will be great in the future, I am convinced. They provide a broad and exhaustive range of e-commerce, which makes them one of the few Internet companies that actually provide a product. There’s been a lot of scepticism about Amazon recently, but there’s been a lot of positive press too. If you take the short view, keep away from Amazon. But if you can wait for a few years, I think you’ll see it become a powerhouse.
As for other success stories, take a look at Outblaze http://www.outblaze.com even though they are not a public company yet. They provide the free technology to power stuff like e-mail, message boards, chat, calendars, etc. but they (wisely?) do not provide content–they let the sites that use their technology do that. They launched a year ago and they have become the Internet darlings of Asia. Their business plan relies on selling advertising on all the services they power, and on selling corporate versions of their services. They’re doing great, even though they compete against giants like Critical Path and Zap zone network. You want to start your own e-mail site? Take a look at http://www.i-p.com for example.
This is the Internet Gold Rush. There is the danger that pretty soon the gold (investors’ money) will be diminished and only the solid, functional companies will survive, and the rest of the crap will finally die. So the best bet is an IT company that provides the shovels that everyone uses to dig for gold, while avoiding jumping into the gold mine intself. That’s Outblaze.
As for AOL, they say that content is king, but in the next few years people will start to wake up. In my opinion AOL are nothing more than the “red commie bastards” of the Internet, attempting to control everything and everyone (especially their clients). Who in their right mind would believe that AOL can be worth more than Time-Warner??? And yes, AOL is big on censorship.
If I’m not mistaken this web site used to be on AOL before Ed Zotti said that AOL refused to renew the contract for it (??? - what the hell happened there?). Anyway, moving away from them was the best thing that could have happened to the Straight Dope.
Abe
IDIOT, n. A member of a large and powerful tribe whose influence in human affairs has always been dominant and controlling.
–Ambrose Bierce
A correction is inevitable, simply due to the soon to surface skittishness of investors whose over-valued stocks don’t produce a dividend.
Once they start selling…
I just hope that it does not become a political issue to shield greedy investors from their poor decisions.
I’m in favor of deposit insurance (high savings can keep interest rates low), but I’ll be damned if tax cuts (my money) go to corporate/yuppie welfare for people who loose on the stock market. It hasn’t happened yet, but don’t be surprised if the market sours a bit, and the loosers clamor for protection of some sorts (“windfall-loses” tax breaks).
I have an i-p.com account. Biggest mistake I ever made. Their mail service has to be some of the crappiest on earth and drags the quality of my entire site down since no one thinks to blame Outblaze when they can’t get their mail.
From what I’ve heard from other users, Outblaze had better look out or else the next free mail service provider that comes along is going to get a lot of transferred customers. Already, the word is out to go to Everyone.net.
[mini-hijack completed]
“I guess one person can make a difference, although most of the time they probably shouldn’t.”
There’s a (vastly simplified) explanation for the over-valuation of Internet (and many other related or otherwise “sexy” high-tech) companies, and it’s called supply and demand.
It’s the one iron-clad law in the dismal science, and it states that, if demand for a good increases relative to the supply, the cost of that good will increase until the two balance. The “supply” in this case is shares of i-stocks; the “demand” is the number of people (and their dollars) chasing those stocks. As other posters have noted, this can turn into a feedback loop: high demand drives prices up, creating an image of a “hot” sector of the economy and attracting more capital.
Eventually everything comes back down to earth, but the real question is whether it will be the much-ballyhooed “soft landing” or a full-scale crash. The AOL Time Warner deal has already started murmuring in some sectors, but my opinion is that the real drop won’t hit until some major Internet business goes under (i.e., is unable to get a new round of funding to continue its deficit spending and goes bankrupt). I doubt that will be Amazon (even though, since they are one of my major competitors, I would dearly love to see them go down in flames); they do have a serious industrial infrastructure at this point (lots of warehouse space, etc.) and their bankers have lent them too much money ($500M + in losses to date) to let them just fail. But I’m sure there are companies out there that have only lost $10-20M and have no real hope of profits, and from their ranks will come the first craters on the Information Superhighway.
I’m a big-time old media guy (books), but even I’d rather not see a full-scale economic crash just to say “I told you so.”
The real answer to the OP is “stock speculators.” Those are the class of people really making money from the Internet (for now).
…but when you get blue, and you’ve lost all your dreams, there’s nothing like a campfire and a can of beans!
It can be summed up in 1 word: Chinchillas.
My parents had cages of them in the cellar when I was a kid. Or, here in Texas, Emus.
Successes:
OnSale.com
NECX, LLC.
Why? Because they have aligned themselves directly with the manufacturers of the products they sell. The manufacturers, then, offer them market development funding which allows them to expand their customer base and pad their bottom line. Although their debt to equity ratios are scary now, they are expected to last longer and stand stronger than the other guys that are trying to build a serious business on nothing more than a web page, a dream and a load of hype.
Sunbear,
The SEC’s Edgar database does not require registration and in an essential tool for any investor. SEC filings are also useful in determining which companies you want to do business with and which ones are full of B.S.