Investing in Internet stocks

The NASDAQ is down from 5000 to 2000. The top losers on a daily basis are Internet-related stocks. Many big-name Internet and 'Net-related technology stocks are down to one-fifth of their peak value – or worse.

All that said, how in the hell can you not invest in the Internet? Its potential hasn’t even come close to being tapped. And until everybody has wireless Internet access or direct fiberoptic connections into their homes, I refuse to believe the wave has crested.

So, has the reality-check on Internet/tech stocks bottomed out yet? Is this the time to be bargain-hunting? How should one invest in a market so risky, yet so obviously an area of huge potential growth?

As a low income earner, i happened to be complaining about Bush’s new tax cut plan one day with the key issue that i wouldn’t see a dime. What a friend pointed out to me was that we are headed toward recession, and the best way out of that is to increase the circulation of money. What better way to do that than with a tax cut for the rich? I would say the best time to invest is SOON, at least that’s what I’m doing with about half of my student loans (i only pay back 3%, and could still profit without actually using my own money–is this illegal?)

Be happy you didn’t.

The market dropped something like 450 points today, monday, NAS is around 1900.

Last time that tech stocks took such a big drop (not today drop) it took 6!!! years for it to get back on track.

Forget it.

Milossarian, your post is exactly the reasoning that was prevalent a couple of years ago, when any company with a .com at the end of its name had stock prices in the stratosphere. If you look now, a lot of those companies are either going out of business or consolidating. Why? Because, contrary to popular wisdom, an Internet business is nothing new. The exact same type of business has been around for a hundred years (ironically, the pioneer of that went out of business last year).

The business? Mail order.

What’s the difference between a mail order house and an Internet business? In both instances you order a product and it gets shipped to you. All the Internet does is make it easier and faster to put in the order. It gives you a better look at the selection, and reduces costs by reducing the need to print catalogs and do mailings. But once the order is made, you’re no different from L.L. Bean – you have to pull it and get it delivered. One of the first times I ordered online, I was told the item I wanted was “backordered.” What a new concept!

If you’re dealing with anything tangible, then your Internet business is just a high-tech mail order house. Do you really think people would have gotten into this frenzy over L.L. Bean or Lands’ End? (Who, BTW, are doing quite well on the Internet, thank you.)

What’s left? Well, there’s information. But with so much information available for free, it’s hard to get anyone to pony up the dough to use it. You need to have something very extensive or unique (e.g., Lexis-Nexis, or the OED). Otherwise, the guy who puts it up for free gets all your customers.

What about ads? A possibility. The low click-through rate has been noted and reported as a reason why the ad-based model won’t work. If they’re right, there will be problems. But low click-through is a fallacy, akin to saying an ad is a failure if people don’t rush right out and buy the product. TV ads are run under the assumption that no one’s going to do that – but by repeating your name, it will stay in people’s minds when it does come time to buy. So, if Coke buys a bunch of banner ads, they are accomplishing the same sort of exposure they get on TV – and for a lower cost (though with fewer impressions). Ads may work once advertisers begin to ignore click-through and think of exposure, but it may still be difficult to keep an ad-based service in the black.

The shake out seems to indicate that the Internet will be primarily a tool to give added service to customers at a low cost. Some companies will make money, but saying the growth of the Internet will make the businesses thrive is like saying the fact that everyone has a telephone is why L.L. Bean will be the next big thing.

I respectfully disagree with some of what you’re saying, Chuck.

Because, using your latter analogy, everybody here doesn’t have a phone (a computer, Internet connection, particularly a wireless or fiberoptic one). But it’s a pretty good bet that the “phone” in this case isn’t going away, and everybody will have one, someday in the not too distant future.

That would tend to make one believe that investment opportunities still exist for companies that will benefit from that “phone.”

I don’t dispute your other points.

Your mistaking the technology for the business. Yes, more people will be on the Internet. But how does that make mail order that much better as in investment?

Look at it this way: the first successful mail order house was Montgomery Ward. They switched to telephone ordering and the Internet in the 90s. Now, in addition to the Internet, the big area of technological growth has been in other forms of communications (it’s really the “communications revolution,” not the “information revolution”). So many phones have been added, and toll-free numbers required that new area codes are routine. All those people could have picked up the phone and called Wards to place an order. They didn’t, at least, not in enough quantities to counteract the losses at retail.

“If you build it, they will come,” does not work in business. You need to advertise and promote. That’s expensive – and difficult, since Internet users are hostile to ads showing up.

Most stock analysts considered the Internet boom of the past few years as a mania (Have you read MacKay?*). They knew it would collapse – just like the boom in genetic engineering stocks collapsed a few years earlier. Investors never learn.

Now a few Internet sites are going to make money. At this point, the best candidates are Amazon.com, Yahoo.com, and E-Bay. There will be others. But the difficulties are great, especially as the “brand names” are established. For instance, it would be very hard for an Internet-only bookseller to survive. If anyone wants a book, they go to Amazon.com, or B&N – names they know. It will be difficult for Joesbooks.com to compete against that.

*Charles Mackay, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds

Amazon.com, Yahoo.com, and E-Bay.”

Huh? amazon.com hasn’t made a penny yet. Yahoo? High of $250/share is now $18/share (maybe less)…

No thanks.

What do YOU think the potential of the internet is?

What do you use it for?

What do you want it to do?

What does it do poorly and what can be done to make it better?

What do you think people will pay for (that hasn’t been thought of before)?

What CAN’T people get for free (that hasn’t been thought of before)?

What function can the internet do better than can be done in real life (that hasn’t been thought of before)?

The internet is good for tracking down hard to find stuff, or maybe to find a screamin’ deal, but how big a market is that?

What connections in your line of work do you think ought to exist, but don’t?

What publicly held companies have answers to these questions?

Better technology will be nice, but a) it will just make the stuff that’s out there now move through the system faster and b) we’ll come up with even more resource-gobbling stuff that will clog up the works.

In other words; damned if I know. Too many questions I would have to ask myself before plunking down my dinero on “the internet” most of which I’m not inclined to seek the answers to. I guess you just gotta do your homework and take your best guess. That is, once you’re sure the market has found it’s bottom.

And let me tell you son, this market couldn’t find it’s bottom with both it’s hands rim shot