I don't pretend to be a stock market whizbang, because real estate has always been my investment focus. But for what it's worth, here is my take on the present stock market situation:

(1) No market will keep climbing forever, far in advance of economic fundamentals. Any child knows that's impossible.

(2) What is perhaps somewhat less obvious is that once growth stops, the market will not plateau at a high level either. This is because people will realize that the greater fool theory has ceased to apply. They will then evaluate where they are, like Wily Coyote looking down after he has walked ten places off the cliff, and the panic will be on.

(3) Regarding Internet stocks in particular, it is my understanding that certain important institutional investors have decided that eventually there will be a just a handful of companies dominating the Internet area, the rest having died or been absorbed. So they have placed their bets on companies such as amazon.com. This model, so pessimistic with regard to most of the dot coms, is certainly not being followed by many investors, who seem to think that if amazon. com goes up it means the environment is good for some little nothing-dot-com with a catchy story.

It is said that there is ease of entry into the Internet area. Well, there is and there isn't. These IPOs which rake in the money mean that a lot of companies can get started with ease. But providing content is very expensive, and the IPO money may not last long.

Anyway, I fear the worst. Once again, I'd be delighted to be proven wrong.

-- Peter Errington (petere@ricochet.net), January 05, 2000

Answers

If you REALLY want to get nervous about dot.com companies and their stock prices check out the WSJ some time last week on page C1. Some fellow did an analysis of 400 dot.coms and made a graph of cap rank versus cap amount. Using both axis as linear you get nothing but a parabolic. However,(!) if you use logrithmic on both axis the relationship is amzingly linear!!!

There is absolutely no rational explanation for this other than herd mentality and the madness of crowds. Conventional analysis such as P/E, assets/share, et cetra make Sept. 1929 look undervalued.

Please note, as I'm certian you do but others might not, that much of the air under the wings of the stock market is in the dot.coms. It doesn't take much to turn the herd, just a few pieces of bad news, from Y2K failure or otherwise!, and yes, we are NOT talking plateau here.

Is Buffet in dot.coms? Greenspan talked of "irrational exuburance" at a DOW IndAve of WHAT!?! Move over Herbert Hoover, Bubba is going to eclipse you.

-- Ken Seger (kenseger@earthlink.net), January 05, 2000.

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-- test (test@foobar.com), January 05, 2000.