Re: I'm getting scared

Gregory Alan Bolcer (gbolcer@endeavors.org)
Thu, 31 Dec 1998 10:14:24 -0800

You fraidy cats. Internet stocks are commodities, as long as there
are no metcalfian hiccups, the steady widening stream of newbies will
feed this mania for at least a couple more years or if not, Clinton can blame
the impeachment as the root cause of any downturn. I think a lot of the mania
is actually overstated. Take the survivability arguement. Suppose you pick
the top 3 Internet companies in a market segment (forget for a moment that the
market segment might not be viable or relevant in the long term), if you put
1/3 of your investment in each, two of them will die out, one will survive, and
the one that does will be worth 100's of times the value. The whole pipeline is
set up this way starting from which companies get funded to which ones make
the S&P500 or Nasdaq 100. The value of most Internet stocks is based on the
simple estimation of what they might possibly be worth in the future (66% x $0 +
33% x some complicated formula involving market share (variable) and market size
(fixed)).
For the big brokerage houses, the losses the two other stocks is more than made
up by the single investment. The only scary part is that the individual investor
often doesn't have enough to absorb this type of loss because of time and scale. Also
they individual investor often gets on the short end of the stick when the big
brokerages decide to dump one of the stocks. Luckily for mathematically inclined
computer scientists, you can determine price-decision points, and consolidation
of all of a brokerage's holdings in order to sell them in whole or a series of
blocks is a recognizable pattern.

Greg 8-)

"Joseph S. Barrera III" wrote:
>
> You're not the only one who's scared.
>
> _Net mania will burn down the Street_ (Christopher Byron)
>
> "...Examples abound. Every day I talk to market veterans who tell me stories
> of Wall Street figures who take secret positions in stocks via Canadian and
> European brokerage accounts, then tout the shares to their acolytes on the
> Web. Some foreign exchanges seem to have sprung up expressly to court this
> sort of activity. But no one in a position of authority is doing anything to
> stop any of it....
>
> "This is a disaster developing right before our eyes for the markets, for
> investors, for Wall Street as a whole... and unless it ends soon, it will
> prove a disaster for the nation..."
>
> http://www.msnbc.com/news/227367.asp
>
> Also check out the chart in http://www.msnbc.com/news/227614.asp
> -- eBay's market cap is bigger than RJR Nabisco???
>
> And from the same article:
>
> "These professionals arent skeptical so much about the value of the
> Internet or that some companies will make a fortune on it. Rather, they are
> skeptical that so many companies can hope to survive, let alone meet the
> expectations built into their stock prices.
>
> "'Survivability, not valuation, is the key issue,' Edward Kerschner,
> investment strategist at PaineWebber, wrote in a May report. He drew
> parallels between Internet stocks and personal-computer stocks, darlings of
> the 1982-83 bull market. At the end of 1982, the most-prominent PC makers
> were Apple, International Business Machines, Atari, Commodore, Tandy and
> Texas Instruments. Only Apple 'was a good long-term vehicle' for playing the
> PCs business, and most of todays leaders Compaq Computer, Dell Computer
> or Gateway 2000 werent even public at the time."
>
> - Joe