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Tech Stocks Rollercoaster - How Was Your Ride? 130

Jack.Gavigan asks: "Today, the BBC is reporting that the NASDAQ index, widely regarded as a key indicator of the health of tech stocks, has dropped below 3,000 points. If you compare the NASDAQ's performance over the past five years with the Dow Jones' Industrial Average and the Standard & Poors' 500 Index, it becomes apparent that, whilst the NASDAQ began outperforming the other indices at the beginning of 1999, its meteoric rise into the financial stratosphere really took off toward the end of last year, peaking in March. Today, it's close to the level it was a year ago and, although it would have to drop another 1,000 points to bring it back in line with the DJInd.Avg. and the S&P500, I think that we may be able to conclude that the Internet/Tech Stocks bubble has finally deflated. How has the rise and fall of Internet and tech stocks affected your lives and careers? If so, was it for better or for worse?"

"Those graphs directly reflect my own experiences over the last 12 months. A year ago, I became CTO of a dot-com startup with seed funding and started a roller-coaster ride that peaked in February and March, when we were talking to VCs about how many millions they would invest. But April saw investor interest in dot-coms evaporate, and we shut down the company in July, returning the remaining seed funding to the original investors, rather than burn their money waiting for first-round investment from VCs who had recoiled from their former darlings - the dot-com entrepreneurs.

Despite failing to become a dot-com millionaire, I'm not hugely disappointed. Being part of the management team of a start-up is a truly unique experience and I would do it all over again for that reason alone. It sure beats being a wage slave. Fortunately, having been CTO of a dot-com has also had a positive effect on my career and, at the end of the roller-coaster ride, I can say that I have no regrets.

What sort of experiences did other Slashdot readers have over the past year? I know that there are probably one or two paper millionaires reading this right now, and I'm sure that their stories are very interesting, but what about the rest of you?"

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Tech Stocks Rollercoaster-How was Your Ride?

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  • by Anonymous Coward
    I didn't do a dotcom, but the Java middleware product I wrote by myself in 95 was bought by a slightly larger Java middleware startup, which was bought by an ancient software company who, using our trendy new software, was able to redo their image and ride the dotcom wave, seeing their stock price go up 8x. Then, the dotcom crashed followed by a series of bad quarters caused them to lose about 99% from their dotcom high. I got out in time (but not at the top), and became a millionaire, but only just.

    Others (from the slightly larger Java middleware startup) sold at the top and became bigger millionaires.

    Yet others waited too long and left with enough cash to buy a used car or less. They held on because, as the stock started falling, they held on thinking it would come back. They feel pretty bad about it now.

    And then there was the guy (VP Engineering at a different company) who was worth $10m one day and whose options were deep underwater a week later.

    The really crazy thing is that, as the stock price goes up it feels great -- but then when you see the same numbers on the way down you feel horrible. I saw my stock go to 50, 75, 100 and above. I never dreamed it would even hit 50. Then it hit a high and started going down and I got more and more depressed until I could finally sell at 85. Riding that rollercoaster during the lockup was one of the most stressful periods of my life. It was awful. (Feels pretty good now that I'm out.)

  • Well, I've seen you linking this picture about a million times on /.. It's time for something new pall.

    And uhhhhh....
    Shock me, this time.
    "Only two things are infinite, the universe and human stupidity, and I'm not sure about the former."
  • by WillSeattle ( 239206 ) on Thursday November 16, 2000 @08:36AM (#620343) Homepage
    Well, when the whole market tanked and NASDAQ was down 30+ percent, I was only down 1 percent from last year end, and that with disbursements too.

    The main thing is not to panic, to buy for the long term, to not invest in anything you don't understand, and to be patient.

    Remember, the AVERAGE growth is 8 to 10 percent. This can mean up years of 20 percent and down years of 10 percent.

    While I ignore the age rule (percent of stocks is 100 minus age, rest is bonds minus 10 percent for cash), just like my grandparents did, and am thus always way more into stocks, I try to buy good long-term stocks for the most part. But I will sell if people get too excited (Transmeta, Red Hat) and buy back in when they get depressed (Red Hat, Microsoft).

    The main factors in becoming millionaires for most people are:
    1. being married to someone who is a saver;
    2. saving/investing 10 percent or more of your income; and
    3. living below your means.

    I could live in a fancy neighborhood, buy a new car every year, but why? I'd rather live in a reasonable neighborhood where I don't have to keep up with the Gateses, buy a new car when my old one needs to be replaced (every 5 or 6 years, almost time), and save 20 percent of my income while giving tons to charity and political causes and having fun at parties.

    Conspicuous consumption - the American nightmare. I ride the bus to work like most millionaires.

  • Good points.

    You've only got to compare stock charts for companies like I2 (ITWO) and BEA Systems (BEAS) with ones for Beyond.com (BYND) and Dr. Koop (KOOP) to see that not all Internet- related stocks are being treated the same by the market. Some are in the 90% down club and some are up quite a bit from the start of this year.

    The strong are surviving and the weak are getting killed, like always. Although the valuations of some of the winning stocks are still quite high and I do worry some that maybe they have a crash in their future.

    Personally I sold a bunch while the selling was good and diversified, but I still have a big tech stock position.

  • This sounds familiar. I bought in after following a few stocks for months. They were performing amazingly well, so I figured now was the time to get in, about two weeks before the big crash in April

    Needless to say, I'm down quite significantly (about 60%, not as bad as your 80, but it still hurts).

    My strategy now? Wait. I won't sell now. At this point, I've lost enough that I'd have nothing to gain from selling, so I'm holding on. It might take years, but between recoveries, buy-outs, splits, and everything else that could possibly happen, I think there's a chance I could recover.

    I've already seen how much I can lose though... at least I've hit bottom more or less :/
  • The difficulty in evaluating whether the 'bubble' has finally deflated has to do with the difficulty in distinguishing between the correlated forces giving rise to the bubble.

    One of the forces is the promise of the Internet revolution. But another that is often overlooked and is just as, if not more, important is the fact that there has been a huge increase in the stock market participation of the 'average joe.' This is most apparent in the growth of mutual funds during the past 10 years.

    In some sense this latter force is really a simple lesson in supply and demand. The demand in stock market investment goods went up while the supply (the stocks themselves) stayed fairly constant. Even when IPOs and new issues arrived, the resulting increase in supply was small compared to the daily growth in demand ... with a 'newbie' investor opening up a $2k IRA Account every few minutes.

    So the question now is how much of the semingly high price paid for 'tech stocks' is due to an optimistic view of the impact of the Internet and how much due to simple supply and demand dynamics. If it's mainly the former, then the market still has a way to go before it's deflated, with every sign that the major 'reality check' is still in the works ... sort of like earthquakes in California, we've had a few large ones but the 'Big One'is still in the making.

    But if the high stock prices are mainly due to the more straight-forward reason of supply and demand, then it looks like the market may have sufficiently deflated. The increase in demand (measured by the arrival of new, private investors) has significantly slowed down and there doesn't appear to be anymore 'hidden' sources of capital waiting to spring out and be fed into the stock market.

    Lastly it should be noted that both of these forces reinforce each other. Optimism in the Internet is a major factor that motivated a lot of first-time investors to take money out of their banks and into NASDAQ. Similarly, greater funds in the market compared to places to put the funds contributed to the high tech prices, leading to even higher levels of Internet optimism.

    Of course, the reverse is possible as well, with Internet pessimism dissuading the arrival of new funds and the lack of new funds creating more Internet doubt ... both of which would have disasterous effects on stock prices ...

  • Not owning any stocks, I have had the advantage of being able to enjoy all of the varius tech stock jokes that have been coming along throughout these last few years. Kinda sad that I couldn't get in on it, but otherwise enjoyable to watch all of those people squirm in their shoes as their money went uP and DOwn.

    Of course, all computer parts buyers have been praying for the asian tech stock market to crash again, that was enjoyable, computer prices being cut in half and all. Oh well, the one thing that the average user can get from all of these .com's going out of bussiness is GREAT deals on almost new computer parts! Thats how I got a 36inch moniter for a mere $400! Yee gads, with sales like that, I can't wait until some MORE companies go out of bussiness! Heh, this is getting to be fun!

    Any ex-CEO's out there looking to unload some athlon workstations for cheap, give me a holler, I'm ready to buy ::grins::
  • The question clearly states "How has the rise and fall of Internet and tech stocks affected your lives and careers? If so, was it for better or for worse?" So for those of you who keep writing other BS, sorry, you should answer the question.

    I started work for an Internet Client Services firm over a year ago, I was given 15,000 shares with a strike of $10, we went from $7 all the way up to $94, that put me at $1.41 million. Not to bad for a 25 year old. We are now at $4/share and I have 5,000 vested. I recieved a promotion as well. This has had a positive effect on my life of course, however, my wife and I were making big plans depending on the stock price which in the end (today) isnt worth a damm.

    I will wait it out untill my next third is vested in August 01, then move on. It's the difference of buying a house outright, or a small down payment. I wish good luck to everyone, find a company that is going to be around for sometime, and then maybe your stock will be worth something.
  • I agree - no point in selling now, although it may be tempting to take the tax write-off
  • Sorry, SvS, gotta disagree with you. To say that "...index funds are tied to the performance of the US stock markets..." isn't totally correct. They're not just tied, they bascially are the US stock markets.

    Statistically speaking, since the crash in 1929, the broader stock market has outperformed every other cash investment over any 20 year period.

    You can invest in the areas you mention, but they require a great deal of research to be successful and intestinal fortitude to ride out the volatility. I you have a long investment horizon (like me: I'm 35 and hope to retire when I'm 60 or so), nothing beats index funds for simplicity, solid returns (average of 11% over the last 50 years) and low risk.

    Cheers....

  • I think it would be a big mistake to lump tech and internet stocks into the one basket. Budding .com businesses have discovered that people like their web sites free. OTOH technology is still high growth and hot. Look at the growth rates of big technology companies like computer, chip and software companies and they way outstrip their low-tech equivilent. Technology is not dead, and neither is the nasdaq.
  • by Trinition ( 114758 ) on Thursday November 16, 2000 @03:50AM (#620352) Homepage
    As others have pointed out, this is the typical behavior of new markets. But I believe there is a new factor here that adds to the magnitude of the swings: Amatuer web-based day-traders.

    These folks were sucked in bu the idea of easy trading and the media's coverage of the "new economy". These inexperienced traders often buy stocks and sell them in the same day. They're in it for the short and fast ride. They also tend to be more reactionary to news and even rumors.

    However, since they are making up an ever-increasing portion of traders, they are having a greater impact. Other traders cannot ignore them -- they must concede at least partially to them since they have a real impact.

    I believe this influx of fledging traders can explain the more-wild-than-usual ride in this new market. Heck, I'd be one of these people too if I weren't too lazy to watch my stocks 24x7.

  • by dgb2n ( 85206 ) <dgb2n@yTWAINahoo.com minus author> on Thursday November 16, 2000 @03:51AM (#620353)
    I've learned, somewhat painfully, the following lesson:

    Despite my personal knowledge of technology and the computer industry, I have not been able to pick stocks that outperform my mutual funds.

    There, I said it. Over the past few years, even including the recent bloodbath in internet stocks, no matter how well I think I know the industry I seem to guess wrong. Please no flames on the examples but I'll list a few: Compuware, bought at 40 currently under 10. A small company called Egan systems, bought at 2 3/8 sold at .18 (ouch), Blue Mountain Brewing (a local craft brewer that I enjoyed) bought at $1 currently trading at a split adjusted .04. I pick some good ones and even have had some good timing but on the measure, I don't outperform my funds. The dogs drag down the good ones.

    Rules of logic don't usually apply to the market. Professional money managers (big firms and mutual funds) have access to information that most people simply can't get even with the information explosion of the Internet. I've systematically moved my money back to stock mutual funds and sleep better at night.

    Don't confuse good technology with a compelling business model that will make money.
  • I ended up fine in the tech stock ride, not rich, didn't loose my pants either. I was diversified and did a bit better than the average.

    What I have to say about the ride is that the crazy prices that some of the stocks were fetching really helped out the industry when there was a lot of money needed. A lot of startup companies got a chance to make it big. Now there has been some natural tech selection and things have calmed down. Some good companies came out stable, and the price of tech stocks is many multiples the value of the company. The people who paid $200+ for amazon were fools and got burned but that's the marked.

  • I saw no significant effect, from the standpoint of running my company [spinweb.net]. We are privately owned, and as such our stock is private. Many times I have been glad that my company is not on the rollercoaster of the stock market and it is a great relief to generally not have to work about the perceived health of the technology industry. The only real effect it may have relates to the amount of spending money that potential clients have, but most of our accounts are corporate so that doesn't really affect me greatly.
  • Before the 1999 hoopla a person with my education would normally drive garbage trucks. Thanks to the brief upswing companies were willing to take chances like they never did before. Unfortunately with no stock options to live off of, breaking even has become a matter of borrowing money every month, so guess you can't defeat the education barrier.
  • If you are worried about the US market, there are
    whole-world, and non-US index funds too.
  • Never claimed my funds wouldn't be effected by
    flucuations(sp) in sector equities.

    By their very definition index funds will be effected by the stock market. That's the point of
    an index fund. It reflects the overall market.

    If you're willing to put your money in an index fund and ignore the day-to-day bullshit put out
    by people who have a vested interest in getting
    you to do lots of trades(brokers...) for a decade or two you'll be just fine.

    Can you say "dollar cost averaging", boys and girls?
  • As someone in a position with some money to save, I've been investigating "Socially Responsible" funds, which screen holdings based on various criteria, depending on the fund. There are quite a few examples around these days, from the Citizens' Funds to the Domini Social Equity Index Fund.

    The one thing they have in common is a heavy weighting towards technology stocks in their holdings. I can understand why; if you're looking for companies that don't pollute and have good labor relations, the technology sector has more options than most. But in terms of portfolio diversification, this tech-heavy bias is, at least for me, more risk than I'd like to have in those investments.

    Is anyone else in the same boat? I'm wondering if there are socially responsible investment options out there that *don't* have that tech bias. I certainly haven't found them...

  • With all the stock options that were thown at people, it seems like a dumb question. For geeks in general, the Tech rise has been like a dream... was it better or worse? As if we even need to think about it! Of course its been better!
  • no problem with my ride...all I have is mutual funds that don't have many tech stocks in them. A few dips here and there, but it all evened out. :) of course...i am only 16, and I only have about 2000 invested....

  • > Slot machines (ideally) are random. Regardless
    > of how badly or losing or winning you are,
    >
    > the chances of you winning or losing again are
    > >equal.

    You make it sound like the slot machines are 50/50
    win/lose. Actually, they are wheeled to pay out something like 86 cents to the dollar. Yes they
    are random, but they are randomized on a weighted curve, like all casino games.


  • I'm sure most slashdot readers have noticed the statistic that most users are going to LESS sites than they used to and spending more time on one site. The sites to win out are the sites that have it all, not a site just to purchase your dog food from. The REALLY SCARY statistic is that 60% of all traffic is divided among 3 websites; yahoo, aol, and msn. This leaves the millions of other sites competing for the other 40%. Hmm, wonder how long that will last...

    PS: .NET excites and scares the hell out of me.

  • eh....i have enough to keep me going for a while, like i said money isn't a big thing.
  • I sold everything about a week before it peaked, and diversified. My portfolio is growing as quickly, but I'm still making money. Don't read this and think I'm bragging, my timing was pure luck, and nothing else. Not everyone can be good at the Money Machine Investment Challenge.

  • Here is my story, and I am not happy. I bought 4 stock, all of which came heavily recomended by market analysts. They were all recomended for different reasons (I won't dore you with details) by well known "analysts" whom I pay thousands of dollars a year for the benafit of their jewels of wisdom. They told me to buy 4 stocks: IRVINE SENSORS CORP (IRSN), SOFTNET SYSTEMS INC (SOFN), VERTICALNET INC (VERT), and APPLIED DIGITAL SOLUTIONS INC (ADSX). I put many thousands of dollars into these trades and as a result, my edog got run over, my ewife left me, and my ehouse burned down. Translation, I lost $22,269 not including the money I paid those goobers for thier "expertise", for a grand loss of 80.8% of my investment. WoooooHooooo, ya loose that cash. I'm not ruined; all of the money I invested was money I could loose. Still, that sucked. I was holding the checks in my hand before I sent them to etrade thinking "Ya' know, that 65 convertable cherry red mustange is only $17,000. No no no, your investing in your future, send the money." CRAP I could have had a V8. Myself, I blaim the media.
  • ...for those who sold their stocks when they still were high.

    I never had an IPO offer so I just kept my money in a good old fashioned bank account.

  • Disclaimer: I know almost nothing about the stock market or economics other than what I have observed. I am generally clueless when it comes to these things.

    Now, I generally don't invest in the stock market. The reason is that the value of a stock is not determined by perceived value. While it is true (in my limited knowledge) that stockholders have some chance of getting the assets of a company that has gone bankrupt, it can be safely be said that the owner of a stock owns little more than the paper that the certificate is written on.

    The value of that piece of paper goes up and down with public perception of the company. The actual assets of the company may have some effect on this perception, but it is always the case that in buying and selling the stock, the price is ultimitely determined by the general perception of the stock.

    I personally don't like the idea of my money being tied up in something whose values go up and down based upon public perception, because, well, frankly, most people are idiots.

    Here is how I think that stock markets should work:

    When you buy stock, you own a percentage of the company. Typically, this would be only a fraction of a fraction of a percent. You therefore get that exact percentage of the company's gross revenue each year. If the company makes 500 million dollars, and you own .0001% of the company, then you get $500 that year. The company is not taxed on the money that goes to its shareholders, but its shareholders are. Whatever the company is left with can be used for operating expenses, salaries, R & D, etc.

    This is basically forced dividends. It follows the principle that if you own a percentage of a company, then you get that percentage of the take.

    There are a couple of upshots to this:

    1) Companies would never want to sell more than a fixed, and probably small (25%), percentage of themselves to the public, because otherwise there would not be enough money left over for the company to pay for its operating costs.

    2) The amount of money you initially pay for your share of the company is determined by market economics. You could sell your share in the company if you wanted to, and might make a profit or lose money in the transaction. But the value of the stock would be much more closely tied to the actual value of the company as a money-making entity and much less to arbitrary perception.

    3) I believe that the market would then become a much more effective means of promoting economic growth, as the value of a company's stock, and therefore the distribution of investment money to companies, would, I believe, be much more closely tied to the actual value of the company as a money making entity, which itself is an indication of its value to the economy.

    Anyway, that's how I think the market should work. I would invest alot more money in a company if I knew that the return would be based on its actual performance, and not on (typically off-base) perception public perception.

  • I got stock options from "Company A". Company A was acquired by Company B. Options transferred, converted to Company B stock, so far so good. Stock options almost ready to exercise, company B states less than expected earnings. Stock drops 40% that day. Stock options worthless. Now I'm just waiting for stock to rebound (optimisim::pray()). So, hopefully, over the next 5 years Company B stock will come back.. Hopefully. (BTW, Company C now owns us...).
  • Does anybody have any hard numbers as to exactly who's getting laid off in various downturns? I ask because I'm a web programmer / DB designer who's working in NYC (Silicon Alley, if you wanna use that term). And I haven't noticed job prospects for me or any of my programmer acquaintances getting any worse.

    Which makes me wonder if the market shrinkage is mostly affecting those with "soft" skills, i.e., marketing, project management, etc., etc.

  • WOW

    And you've been riding that!!!!!!!

    I can only imagine...

    "Only two things are infinite, the universe and human stupidity, and I'm not sure about the former."
  • I think that we may be able to conclude that the Internet/Tech Stocks bubble has finally deflated. How has the rise and fall of Internet and tech stocks affected your lives and careers? If so, was it for better or for worse?"

    That depends on how you look at it. Five years ago, which is the timeframe this article uses, there was one listed Internet company - AOL. It had a market cap of $1bn. Today Internet companies have a combined market cap of $1 trillion. So you're telling me an industry which has grown its net worth by a factor of 1000 in five years, created 2 million+ jobs and made who knows how many millionaires is "deflated"?

    Don't confuse the difficulty of picking stocks with what real wealth creation has happened in this period.

  • ...yet. None of my tech jobs so far have relied upon stock options or any of that nonsense.

    If the NASDAQ's recent plunge and a corresponding dip (or maybe just a slowdown) in the Dow signal a more widespread economic downturn, then perhaps I will eventually be affected. Sure, my mutual funds and 401k haven't exactly grown at the rate I expected this past year, but hey, those are long term investments anyway. I check the numbers each morning, then yawn and flip to the sports section.


  • Working in the market data systems group for a major asset management firm, I dispute what you say about access to information. We are prevented by a whole host of very strict laws from trading on the basis of any non-public information.

    What we do have that the average Josie doesn't have is huge volumes of data, big (and generally proprietary) systems to process that, in-house risk and volatility models with mathematical market simulation systems, and rooms full of very experienced portfolio managers watching every major market worldwide 24/7. This stuff costs big money, but it generally pays off, so we can charge decent commissions.

    I know I sound like a marketing brochure but the more time I spend in the company of professionals the more I am amazed at the stupidity of people who go out and bet the house on some tip from yahoo finance! I used to trade some of my own cash, but have been stung enough - my cash now goes in nice tax-efficient (and safe!) funds.

    You wouldn't expect the average guy to write his own OS (Linus is not average!) so don't expect them to trade their own stocks....
  • by update() ( 217397 ) on Thursday November 16, 2000 @04:45AM (#620375) Homepage
    Anyone else do this? I go to my Netscape page, check the weather and sports scores, look at my stocks and think, "Well, I lost money again. But at least Eric Raymond lost more [quote.com]!"

    Yeah, I'm a bitter person ;-)

  • If you're debating whether to buy index funds or actively managed funds, remember that the success of index funds doesn't even depend on the efficient market hypothesis. Just the fact that their expenses are lower insures that you'll beat the average return of all actively-managed funds, and the principle of "regression to the mean" guarantees that it's impossible to pick actively-managed funds that will beat the average return. For more on this topic, and to find out why an S&P 500 fund is NOT the best index fund to buy, check out this speech by Vanguard's Chairman John Bogle [vanguard.com].
  • by Anonymous Coward
    > What sort of experiences did other Slashdot readers have over the past year?

    At the beginning of this year I was working for a small (<50 employees) Internet start-up. During the year, we were bought by another bigger (a few hundred employees) Internet company for over $500 million. Since the main product of our work was software, we counted the number of source code lines in our repository: it was about 1,000,000. We figured we had produced about half of those ourselves. That comes to $1,000 per line of code!

    The purchase was effected with the parent company's stock. By the time the deal closed a few months later, the stock had dropped in value by about 2/3. Still I was able shortly thereafter to exercise my previously acquired options at less than a tenth of that value. The tax payment on my paper gain was almost 4 times the exercise price (the options were non-qualified). I also got a bunch of new options at the then-current price.

    As I write, the stock is down another 27%, but still worth almost 8 times what I paid for it. And I actually don't care what it's worth today. All I really care about is what it's worth when I retire, decades from today. The total value of all that stock is only 1/5 of my retirement portfolio, and it's all in the stock market (in various mutual funds).

    In the long run, there's no place to be but in the stock market (see this bar chart [sirius.com]). So I've picked several of the more aggressive mutual funds and put all my money there. And I'll leave it there. When I get to within 10 years of retiring, I'll start paying more attention and start thinking about when to get out.

    Of course, as Milton Keynes said, "In the long run, we're all dead!"

  • I find a balance is good. Being proud and saying "I have lived like a hermit and n years later I have X$'s" can take away the pleasure of living. Trips/cars/homes/entertainment can bring pleasure to the human experience. One can always make more money, time cannot be brought back. I don't recommend live for the moment to the exclusion of some sound saving policies but by the same token don't deny yourself pleasure as you save. Nothing worse than some wealthy duffer filled with regret later in life musing about the pleasures he passed up on to amass a pile of cash. As my mother always used to say: "You never see an armored car at a funeral".

    Hedley
  • Your take on the stock market is interesting, but hardly reflective of the truth. The value of stock, in general, is not based on public perception of a company. For example, the S&P 500 is based on the diligent, detailed work of expert analysts who look at a variety of factors, including (but not limited to) past performance and earnings, who's running the company, recent changes in the company, and long-term production/business plans. The S&P 500 is not a list of the coolest companies, but a carefully compiled and analyzed list of companies that consistently (over a period of years) produce value. If you buy stock in one of the companies on that list, you are looking for a relatively safe investment based on steady growth. The stock market is not a roulette wheel or poker table, and people who play it that way are destined for disappointment. Investing in the stock market is just like putting your money in the bank, except that stock market investors generally accept slightly higher risk for a slightly higher return (even though they are constantly seeking for ways to limit that risk while keeping returns high). Stocks are just another investment (like an insurance policy, or a retirement annuity, or a trust account), not a popularity contest (and in the end, that is precisely why the dot-com boom had to be short-lived, no one bought into all that for long-term).

    An interesting note: the Wall Street Journal does a funny experiment where they have three top stock analysts pick which stocks will be high growth for the next six months, then they pick three other stocks by literally throwing darts at the stock pages. In the past, the dart stocks have consistently out-performed the experts' picks.

  • Remember, the AVERAGE growth is 8 to 10 percent. This can mean up years of 20 percent and down years of 10 percent.

    Warren Buffet (very well-respected investment guru) pointed out in a speech that it doesn't make any sense for the stock market to grow faster than the economy as a whole. How can the stock market, which represents all of the public companies in the country, grow faster than the economy of the country for any sustainable period of time? The two possibilities are either that everything has been undervalued all along (I seriously doubt it) or a larger-scale but less severe bubble is being created (and has been created ever since the baby boomers started saving for retirement). The economy grows at about 3-5% a year, as measured by output. The stock market grows at about 8% a year. It's easy to see that as time goes on and this continues, $x in the stock market will represent less and less actual output.
  • Actually, what you describe exists. It's called an 'S-corporation'. Likewise, what you describe about the valuation of a company is as it exists today. The market values a stock at the current value of all future expected cash flows to the stockholder. Whether those flows are in the form of dividends or capital appreciation, you add up all the cash you expect to receive for the life of the company and adjust them to bring them back to the present value. The adjustment is for the amount of time spent waiting for the cash and a reasonable rate of interest relative to the risk of the investment.

    The idea is that $1 today is worth more to you than $1 given to you a year from now. That's because if I give you $1 today, at the very worst you can stick it in a savings account and it will be worth $1.03 in a year, so the promise of $1 in a year is worth about $0.97 today.

    Now switch to the idea of "how much would I pay for the right to receive $1 every year for the next 30 years?" To solve that, add up the present value of all the $1 you will be receiving. The first one is .97, the next one is .93 (compounding), the next is .88, and so on. Add it all up, and you get about $20. Of course, at the end of the 30 years, the stock isn't worthless unless the company has no assets, and even if it closes down, you'll get a piece of that as a shareholder. So if we wave our hands really fast, we can say that the corporation is worth about $10 per share just based on its assets. That $10 in 30 years would be worth about $4, so the share price you'd be willing to pay (assuming the 3% interest rate as your "price for money") would be about $24 per share.

    Now look at it if you think the business is a lot riskier than a savings account. Say you require a 12% return. Then, these future cash flows are only worth about $8!

    Suddenly, we have a marketplace because someone thinks it's worth $8 and someone else thinks it's worth $24. Even if they split the difference and the person who owns it for $8 sells it for $16, they both are happy with the transaction.

    From this comes the wild swings in the marketplace. Everyone thinks they have a better model for assesing the value and figuring out what the future cash flows are going to be. A lot of them get proven wrong when a company's revenues aren't as good as projected or they can't make and distribute a product as cheaply as they thought they could, and the investor loses money when the share price drops on this new information.

  • Coal and steel aren't the only assets in the world. In fact, the only value they have are in what you can do with them directly, and what price you can sell them for. Another way of looking at it is that human labor and ideas are also a 'natural asset', and they are not intrinsically limited in the same way that some physical commodities are (unless you feel like extending this all the way to the heat death of the universe). A good company is one that can sell something for more money than it costs to produce it, whether the actual product is cars, feather boas, or ad clicks. Just because the company makes money in the process does not mean that somebody else loses out. When a company makes more money than it spends, it grows in size and in its ability to sell products for more than it paid for them. A share of stock represents a portion of a company, so the share of stock tends to rise proportionately with the wealth of the company. This is not a zero-sum game. I personally get up every day and increase the total wealth of the world by producing source code where there was none before. That's eventually what makes stocks go up.
  • Institutional investors account for some 75%+ of the total traffic.

    Where do you think those institutional investers get their money to invest? Baby boomers (amoung others like me) give them money to invest. Now I don't claim to know what will happen when they are all withdrawing funds not adding to them. However institutions still come down to money.

    BTW, information I've recived from a source I can't recall (but I think it was goverment) suggests most americans were net sellers of stock during the run up, it was foreign investers doing the run up.

  • The stock market is not at all like a slot machine. Slot machines (ideally) are random. Regardless of how badly or losing or winning you are, the chances of you winning or losing again are equal.

    The stock market is more like a rubber band; when undervalued it will rise (for example, technology after october 1998), when overvalued it will fall (for example, internet companies after feb 2000).

  • What do you mean its over? The reason that the stocks are down in the first place is this stupid Presidential Election. As soon as that crap is sorted out, they will begin to rise again. Look at it as a good time to buy some stocks at a good price.

    Hasues
  • Well let's see - options are about 32% under water well into their 2nd vesting year so that gift is worthless. About 25% of my cap is in tech stocks which are about 75% from where I bought them. Everything else is steady or better, marginally so at least better than any other instrument like a CD or a mutual fund or index of any kind. My accountant says I need well timed losses which is where the tech stocks play today.

    Wrap it all up and I'm still working, still employed, still have to be. If my expectation was to become a dotKommissar cash out and retire to Fiji well that isn't going to happen. I'm a dotCommoner instead. My employer is grinding through its annual "...Times are great! We have to cut 10%!" bullshit gyrations.

    Those were mostly my expectations. OTOH I've been doing this for neigh on 2 decades so it's not as if I just graduated went to work for a startup and went belly-up in 8 months later. The economy and this sector is still growing rapidly, more rapidly than at any other time execept for the prior 3 years. And yeah it would have been nice to get in on the Yahoo IPO but that didn't happen either. Most of us are not going to retire @40 get on the board of a Ballet company, start a foundation, trek through the Andes and get a trophy wife. Conversely most of us at least now are not in the position that EE's were in in the late 70's/early 80's, or MIS types 87-92 where you got laid off the week before Xmas, had to reapply for your job and take a 25% cut.

    'Every country is three meals away from its next revolution' (quoted on Red Dwarf, it's from Tallyrand, I think)
  • I knew that investing on-line in these new/recent-IPO stocks was risky. That's why I only put about $2000 in there, something I could afford to lose outright if worst came to worst.

    Well as of today that $2000 is worth $300. I have now revised my strategy a bit :)

    I am now holding this stock that I bought at 29 (now 4) as a long-term investment. Oh well, live and learn as they say.

  • Dont worry so much about the short term. The past decade has been great even is 1990, 1994 and 2000 were bad years.

  • My luck was as bad as yours was good. I BOUGHT the week everything peaked in March, having held out on investing in tech stocks until then. I've since lost about 80-90% of what I invested. (Fortunately, I didn't invest everything I had!)
  • by LHOOQtius_ov_Borg ( 73817 ) on Thursday November 16, 2000 @05:05AM (#620390)
    I concur... The industry has grown and now the growth is just slowing... It couldn't have continued on forever, and now we are moving into a more mature phase of the industry where you need more than a .com at the end of your name to get VC money and customers...

    Personally, things are fine for me, and seem that they will be for a while. My skills are in demand (both technical and business), the job market is quite robust in all the places we hire people, and the value of my company has increased by over 50% in the last 12 months.

    But things are also better for my company (www.webmind.com) Why? We make innovative software which, while "Web enabled," really can work in any computing environment and is applicable to non-Internet as well as Internet information retrieval and understanding applications. By no longer having to "compete" with dogfoodonline.com or fedexyouapizza.com or whatever for VC attention, PR attention, and valuation - we're better off. We're actually creating something with intrinsic value, not just a "new e-tailing paradigm" or some such nonsense.

    Software and hardware companies which are focused on solving business problems, and maintaining development (and research/innovation), will do just fine. People who hoped to get rich off of community sites or e-tailing have merely found out what brick-and-mortar players in these areas knew: advertising models (like TV and community sites) and retail models are difficult to make work, the margins are thin, competition is fierce, and customers will bolt to your competition at your first mistake.

    There is an old adage in business people seemed to have forgotten: "you don't get rich in retailing" You don't, but Sam Walton does. Amazon.Com, despite doomsayers, will probably survive - but many other "web superstores" will probably fail. Focused retailers like Fatbrain.Com who provide excellent price and service will probably also survive. Otherwise, retailing will thus, most likely, remain in the hands of retail experts like Wal-Mart.

    Things which actually belong on the Web: software sales, information services (some ad-driven sites will survive, community access low-budget sites will survive, and some subscription sites will survive - hey, just like TV and print media), etc. will continue as well. Shake-ups will occur. The wheat will be separated from the chaff, as they say.

    We'll hopefully be left with a set of companies which have strong economic - and Internet community building - value, and be rid of all the completly embarassing and silly companies that were already making our industry look bad when they WERE doing well... Everyone knew THAT bubble had to burst, but it doesn't have to - and it won't - take the whole tech market down with it.

  • Those of us who have been around for awhile have seen this sort of thing come and go a few times. Back when Atari was going through it's boom-bust cycle, I had some friends who were experiencing what I then christened "the dough-ball effect". Basically, when a real whole lot of money shows up, lotsa "dough", you end up being suspended in this yeasty fungal rising bubbly mush. You try to push it around to get it to do stuff but you find it just absorbs your energy like a big wad of dough.

    My theory is that all the nice sugary capital that gets stirred into the mix so rapidly is an irresistable lure for the fungi-people.

    When it finally falls and the fungi-people all kind of die off or go away or whatever they do when the sugar-daddies have all gone, then you can actually make some real bread!

    Anyway, that's what I think.

  • If you are really serious about your coffee, I think you should get one of those industrial strength two gallon percolating coffee makers, like they have at some Churches. I was thinking about getting one for my developers, because I can just imagine the endless supply of caffine and code that would allow us to generate. On the other hand, I can't seem to get these guys to stay up for more than two or three days at a time, they start to drool and babble incoherently, worst of all they stop producing. I find that the threat of shock treatment will keep them going for about 8 hours after that. Actual shock treatment will keep them going for another 10 hours after that!
    Once I installed the iron loops to the floor, and issued every employee shackles, my turnover rate dramatically decreased. Really though, if you're going to make someone sit in a chair for 60-80 hours a week, please get them something with a soft seat!
  • I'm sure most of you can relate to my experience: Getting hired on with a moderate salary, a butt-load of options, and more investment money than time. Our ride ended about this time last year but it's taken us this long to actually close the book.

    What you may not be aware of is the move by VC's to demand results and viable plans. Yah, I'm sure you've seen it coming, but it's nice to know a good dose of reality is being injected. In fact, the last VC we talked to said something to the affect of "yah, you need $5M to keep going until next year and you might be profitable by then, but here, take $20M and do it right." That's a trend I can dig. Rather than Quick & Crappy we're getting the financial backing to build Righteous & Robust.

  • This would only be a zero-sum game if there were a fixed pool of investors, investing a fixed amount of cash. But it is possible to choose whether to put your money in stock or in other investments, or none at all. Further, new money can come into the market (for example, from wages). And corporations raise money from other sources, such as the bond market, which can lead to growth that affects share prices. So flows into and out of the market as a whole also have to be taken into account. Yes, your earnings on stocks have to come from somewhere, but that's not what's meant by "zero-sum." That's just double-entry bookkeeping.

    Keep in mind that, if the money starts flowing rapidly OUT of the stockmarket into other money parking places (say, cash, real estate, or tulip bulbs), it can also look for a while like a less-than-zero-sum game. Does the term "liquidity crisis" ring a bell?

    Comparing the stockmarket to a poker game is like comparing the ocean to a small box of marbles. There are some boundary- and scale-related phenomena that are too important to ignore.
  • Sounds smart. I am awfully poor compared to stock weenies but I put my money into my equipment and musical gear. I actually think it's kind of stupid to not put your money into building your own business, unless you have no skills. Most people who read Slashdot have skills: otherwise they wouldn't understand half the articles.

    "Some people in the music business make a lot of money and put it up their nose. I put mine in my ear." -FZ

  • Wow an explanation of the effecient market hypothesis on slashdot. Makes me want for my school days. The truth of the matter for me at least as a software engineer, is that as much as the new advances in computer science are very interesting, I still look back to my undergraduate days studying Econ as the most mind blowing. Of course I always then get a little chuckle when I hear open source as some how new and ground braking. I guess it just goes to show that the world of knowledge is so vast, that some things rather simple sometimes ideas have a hard tome breaking through to other disciplines.
  • Death of the internet predicted. Film at 11.

    --Kai
    --slashsuckATvegaDOTfurDOTcom

  • by Splatta ( 7993 )
    I don't know anything about what the future will hold, but, I do know that I got a car out of that whole stock thing. ;)

    IPO'ing at 19 was interesting, to say the least. I'm currently at another pre-ipo company, but, it doesnt seem like we'll be going public for a bit, due to the recent unprofitability of '.com' ipo's. I'm just lucky to be working for a company which is well managed and sees this as "not-a-good-ipo-time". I'd hate to ipo at $6/share, and then see it drop to $2/share, after an ipo starting at $6/share, and then shooting to $160/share, it just wouldnt have that certain something. (even though now that certain company is now at $2/share)
  • Career-wise, the dot com madness has certainly benefited me, even though I wasn't a part of the "dot-com industry". I've been a software developer my entire career, but it's always been in embedded stuff, either in the public sector [ettm.com] or in consumer peripherals [lexmark.com], never in web development or any of that. I've risen through the ranks as a wage-slave programmer and then project manager, and am now a happy consultant in a small, specialized firm. I'm sure the better economy, helped in large part by the Internet boom, was a factor in my upward mobility -- but I work hard and I suspect I would have done fairly well regardless. I'm no dot-com millionaire, but I'm not crying either.

    To me, the best thing about the web hype was the commoditization of the internet. Sure that's got its ill effects, for example the millions of idiots, the script kiddies, etc, etc, but it also means good things like $40/month 1500 kbps ADSL connections, cable modems, etc. Despite being stingy and greedy, the big corps realized that there was a gold mine out there on the web (or thought there was), and they knew that if they were going to keep the hype going they were going to have to deliver a better experience -- thus the higher bandwidth, lower PC prices, etc. Whether or not we like the content, the fact is that the dot-com boom benefited everyone by motivating big slow businesses to improve the communications infrastructure.

    And, more importantly for me, the inescapable hype surrounding the internet caused vast numbers of ordinary, non-Internet-oriented companies and consumers to realize that the Internet exists and that it can make their life easier. That certainly hasn't hurt my consulting career...

  • There are two distinct (for me, anyway) topics: stocks and jobs. Since I don't depend on the stock market for my income (and yes, I do realize that I'm different than some IT folk in that regard) what the stock market does has little impact on my quality of life.

    That said, there are still some great tech stocks out there, maybe not all on the Nasdaq, but good all the same. Even at today's low-end pricing, my holdings in JNPR would have to halve before I'd see a loss, and the upside potential is still great despite the market burp. AAPL was and is a great buy, rarely do we get the opportunity to buy what was an $80 stock a few months ago for 1/4 of that price. 'Course, that assumes that it'll someday become an $80 stock again -- a leap of faith I'm willing to take given the miniscule downside risk. On the NYSE, my TWX and VZ aren't superstars, but they're up from where I bought them -- not bad, given the bleed-out of late.

    There are good technology companies out there, but investors who have never evaluated stocks based on quality, value, and business acumen have no idea how to find them. Having invested since '82 and lived through '87, I'm having a field day on the buy side. Cheap, cheap, cheap!

    On the topic of work, while my technology employer has had some troubles this year, they have not been laying off the way that their peers have. My options are worthless right now, but I'm still at work, still making decent money.

    Let's put this into perspective. The labor (and I think Commerce) department(s) keeps track of the "IT Sector"'s shorthandedness fairly closely. The last number I heard was that the U.S. would continue to fall short of supply (e.g. workers) for new IT jobs at a 25,000 per year clip. Per year! I went through all the articles I could find on Yahoo and Fucked Company [fuckedcompany.com] and added up the losses -- about 5000, maybe 8K. 10 at best, given that I probably didn't find them all. So, a little more than 1/3 of our job surplus for one year has been eaten up by tech layoffs. And, consolidation will soon enough kick in and the tide will slow.

    I realize my advice isn't much solace to the folks at Britannia.com who just lost their jobs. [yahoo.com] But, for quality workers (or contractors) who know what they're doing, there is more work out there than workers. I think that at best a tightening of the market will help sort out the wheat from the chaff, and allow employers to be more selective than "do you have a pulse?" That will make the sector even more efficient and competitive, and we'll all benefit from that. In fact, I'd go so far as to say that there'll be another boom in the IT sector, just as soon as this consolidation completes it's cycle.

  • --"Death of the internet predicted..."

    Interesting how you predict the death of the internet here, one of the most popular sites on the internet.

    Thats like saying how much better counter-strike beta3 was better than the latest, and you're telling me FROM THE CONSOLE OF THE GAME.
  • by AnhZone ( 139289 ) on Thursday November 16, 2000 @06:15AM (#620402) Homepage

    Economists have a simple, but profound, explanation for this. (I am referring to those who actually study economic theory, not people on Wall Street who declare themselves economists and make predictions just as unreliable as anyone else.)

    If it were easy to predict which companies would make a lot of money, well informed people with a lot of money would have invested in these companies, so their stock price already reflects what can be predicted. Even if the smart people don't have lots of money, they can start their own investment fund and rich uninformed people will give them money to invest, with the same effect.

    If investors didn't behave this way, any smart investor could make huge amounts of money by betting on the companies that have good prospects. There would be lots of "$500 bills left on the sidewalk", and we don't see that - people pick them up when they find them.

    The result is that stock prices usually reflect what can be figured out by smart people with industry knowledge. Stock prices can move wildly, but that is because there is a lot of true uncertainty about how a company's performance will turn out (nobody knows).

    Unless you have inside information that no one else has (and it is not illegal to trade on it), on average you won't do any better than the market average return (adjusted for the riskiness of the stock - risky stocks have to have higher returns to get people to buy them.) Bubbles like the run up in the value of tech stocks make it appear that anyone who sees a future in IT is an investing genius, but the bursting of the bubble shows the fallacy of this.

    Most investors, including fund managers, who make lots of money on the stock market are lucky, not endowed with an ability to see things that no one else does. Look at the best performing mutual funds in the months and years after their exceptional performance. They usually do worse than the market. So buying a fund that has already done well is usually a bad idea.

    The upshot of this for you and me: pick a broad market index fund that will give you average market returns, but with lower variability than a narrow stock or fund, and much lower expenses (the only certain part of your rate of return) since the fund manager is not buying and selling all the time. Broad index funds outperform 70% of mutual funds, mainly due to low expenses. Look at your stocks and see if they have performed better than the S&P 500 over the past ten years, and how much more variable (risky) they have been.

    You rarely hear this advice because no one makes money giving it, and financial types have to admit they don't accomplish much. Financial advisors get no commissions from these barebone funds, so they don't recommend them. Check out Vanguard index funds because Vanguard is in effect a cooperative owned by the investors - it has no financial incentive to sell you things you don't need that make high fees for the fund owners. Vanguard was created by large pension funds to introduce the first index funds.

    IAAAE (I am an academic economist.)

    AnhZone

  • I thought if you got bought the options had to be bought out...
    ---
  • Hey, I lost 75,000$ because I stopped paying attention to the market for a while, whoops! Oh well, it is only money I guess.
  • My mother and brother had invested in a .com that was doing very, very well. Stock price had tripled, and was heading North. So I took the gains from a previous investment and dumped it in there, expecting to double my money or something like that. Hah!

    Well, when I bought it was close to $20, heading for $40. As of today, it's a penny stock, fluttering just under the dollar mark. While I did manage to buy more while it was sliding down to bring my average buy price down, it's still worth 10x less than what I paid for it.

    What were other's experiences? Did you find that all .com enterprises were basically treated as pump-and-dump stocks, or did some actually manage to hang on to their worth, and actually back it up with something more substantial than a stock price?

    All I know is, I'm looking at how to best use the loss. Sigh.

    "There's a party," she said,
    "We'll sing and we'll dance,
    It's come as you are."

  • Really, the market is a way of distributing the profit on goods and services to people willing to take a little risk.

    Only if the stock pays dividends. Many stocks nowadays don't, and they are therefore traded exactly like baseball cards, in a zero sum game.

    --

  • For me, I never bought stocks based on the fact that the majority of the startups had NO PRODUCT. This is what eventually brought them down, that they had no physical product to give, and wanted to either give it away and live on advertising dollars, or sell a niche product which doesn't physically exist.
    Although I could gloat and say "I saw the end coming" I first predicted it over a year ago, and it took a while to get here. Now it's just a difficult situation for all because the investors want to shy away from start ups now (with good reason), while companies with a strong possible product sit on the wayside trying to get the money necessary to work.
    The stock market is a bumpy road, investors will either jump in head first, or not at all.
  • "For all the winners there are losers. Remember you don't win unless there is some one out the BUYing the stock from you."

    There's no problem selling the stock if you bought a stock which has a reasonable value. The real losers are the people who bought stock which lost most of its value -- but the losers do not affect the other companies much. Except for the dividends (company profits) which are pumped out of your stock -- or pumped back in if you reinvest them. And in the meantime your real job, and the non-catastrophic companies, are creating more wealth which gets scattered around in various ways.

  • I lost over $10,000, but a lot of that was gains in the first place - depends if you are looking at losses from an accounting major point of view or an economic major's view. But I'm still down about $2K based on two lousy investments. At least it will help come taxes (sold on some biggies, then lost a shitload and sold that and they negate each other for capital gains).
    MONKEY
    ------------------------------------------ --------
  • by yamgirl ( 120751 ) on Thursday November 16, 2000 @06:31AM (#620410)
    Yes, it's fall, and time for the third annual "the bottom has fallen out of the tech stock market! the honeymoon is over! the sky is falling!" fest.

    The Nasdaq's down, yes, but so is every other market in the world year-to-date except the TSE, and that's only because of the performance early in the year of a stock that has 30% of the TSE's market cap. The tech sector is down this fall, yes; and last fall. It'll recover. Ignore market psychology and value ratios and technical indicators for the moment, and think: every day slashdot posts about new and exciting technology. Progress and the level of technical achievement in our culture advances continually - the only thing that can hold the tech market back is a fundamental restructuring of society - but if that happens you'll have worse things to worry about than what your dotcom stocks are doing. It's a geeky world out there and it'll only get geekier - so buy a mixed basket of techs while they're cheap and hold on to 'em for 20 years and retire.

    How's my ride been? Well, I'm 30% up from where I started, and when the market recovers, I'll be doing even better. "Welcome to the wonderful world of high technology."
  • I agree I got some job offers as well, and even a year ago the stock options they wanted to offer didn't interrest me.

    Stocks are nice, but the last 2 companies I worked for are in that "get rich quick" scheme of things.....

    Now I am going to an "old" company and that's fine with me, they pay decent and I have the chance to actually move something.
  • Since around 2 weeks it seems hunting season is open.

    I get around 2 e-mails a DAY offering jobs all over the place.

    Michael
  • I was in on the Caldera IPO. I put about $4k in and it's worth around 1k now. Still, I see it as a long term investment and I do feel that the Linux companies will end up strong. I may not make my money back but what the hell.
    ---
  • The stock market is liek the weather,as soon as you think you udnerstand it, it will change.

    Att he end of the day tehre were two kidsn of tehc stocks, those that were legitimate investments in companeis building the infrastructure of the future, and speculations on moeny making schemes in that infrastructure.

    Investemnts in infrastructure companies (for instance, my own Sun stock) have been resiliant and IMO will recover as they haver in the past.
    Wild schemes with no profitabiltiy i nsight,ill die.

    This is just normal market consolidation. The death of the tech sector, to quote the man, "has been greatly exaggerated."
  • Speaking of $500 bills on the sidewalk ... there's a famous economist joke that goes as follows ...

    A man walks down a street at night. He sees a famous economic theorist on his hands and knees searching for something around the streetlight. He approaches him and asks him what he's doing.

    "I'm looking for my keys."

    "Oh, did you drop them around here?"

    "No, I actually dropped them over there"

    "Then why are you looking for them here"

    "Because the light is over here"

    Point of the joke (before I get a karma drop): theories often developed by economists are based on convenience (especially mathematical convenience) than reality.

    If you look at the formal presentation of the efficient market hypothesis (note the last word), you'll find quite a list of questionable assumptions driving the result ... and as mathematicians say, "When proving a theorem, it's the first mistake that's the killer."

    By the way, the predictions by economists are not much better than those by Wall Street pundits ...

  • But I am broadly skeptical of your idea that you cannot predict anything by looking at the stock market index

    Predicting something by looking at the stock market index is called Charting. In my book, it is vastly similar to astrology, with an interesting twist, as the market is self-referencing (people look at market prices, take decision because of the prices, which is then reflected in the prices itself). Such value is not linked to the fundamental that the market is supposed to represent, and is the bubble we see. This may also be the root of the chaotic components found in market prices (chaos and feedback go hand in hand).

    In particular, I would draw your attention to this graph, which compares the overall returns of the NASDAQ composite and the S&P 500 since 1985. Observe how closely one tracks the other [...]

    Personally, I'm a strong believer in the efficient market hypothesis

    I stop beleived at the efficiency of the markets shortly after I started working with option valuation. It is amusing to taklk about beleiving in market efficiency. Is capitalism already a religion ? :-)

    it's not clear to me that the long-term valuation of any given stock will outperform the index.

    About your MSFT example, I want to point you to the fact that the theory (well some of the various theories) actually pretend that everything will happend in the future. One day MSFT will get in par with the S&P, for which ever starting point you choose. One day it will also be twice at 200%, and another day at 50%. All those events will occur an infinte number of time.

    MSFT crossing the S&P. See this graph 2 Years [yahoo.com]

    MSFT halfing. See 1 Years [yahoo.com] (From 15 march to 15 oct)

    MSFT doubling. See 5 Years [yahoo.com] (Doubling occurs somewhere in mid 98)

    If you look at 1 Year MSFT [yahoo.com] you can see that in those current days, the volatility of MSFT is high. But what can you deduce from that ? Only that the various events (crossing, doubling, halfing) will occurs faster. But you don't know if MSFT will double before it halfes, or the opposite.

    The idea is that if such a knowledge was possible, it would already be reflected in the market price.

    Note that I am not arguing that the stock movment is random. There is a stochastic componenent on top of a fundamental. In the MSFT/ORCL case, the fundamental is the emergence of high-technology. When looking at the 15 years MSFT/ORCL graph, it is clear that something happened. But the past tells us nothing about the future, and we don't have the singlest clue about how this fundamental will evolve by starring at the stock market index.

    Cheers,

    --fred

  • Your arguments support any pyramid scheme: it's not zero sum, since we can always bring more people on board and convince them to put their money into our scheme. It works, but only to a point. The money lost is always equal to the money won.

    When you buy stocks, you lose money, just like when you buy entry to a pyramid scheme. When you sell stocks, you make money, just like when you cash out of a pyramid scheme. If stocks don't pay dividends, then the total sum of money lost is of course equal to the total sum of money won. In precisely that sense it's zero sum.

    Trading dividend-less stocks is exactly like trading baseball cards.

    --

  • This mirrors my own experience working for two different ISPs from 1995-1999. I'm still waiting for the second ISP to go under from the idiotic machinations of the egomaniac in charge. (The first ISP was sold.)

    The points about the marketroids and the idiots in sales making losing deals were particularly on-target. I *still* marvel over some of the unbelievably stupid sales contracts we signed.

    And, of course, the techies got the blame. We were actually told once by our CEO that we (the tech department) were losing the company huge amounts of money, presumably because we were failing to squeeze blood from a turnip, and were desperately trying to get equipment actually capable of handling those web customers the sales droids were constantly acquiring (at a net loss, of course).

    Raises? HA! Of course not. We didn't make the company any money, the SALES people were the ones bringing in the revenue.

    I will say this: trying to keep those ridiculously overloaded mail systems running for two years taught me a LOT about the management of Unix boxes in extreme conditions. I do not think I would have been able to acquire that experience elsewhere. And I should add that this experience has seriously increased my worth at my current job. Unfortunately, the daily interpersonal and technological battles almost completely burned me out -- a burnout I'm still trying, mostly unsuccessfully, to recover from.

    I am wondering about one thing, though. How in the WORLD did you find a company without marketroids? It seems they're everywhere in the tech sector. I would love to learn where to look in order to avoid them.

    Regarding the dot-com "crash", I truly believe that a lot of it is simply a reality check at these mismanaged companies. I hope that enough administrative types learn from these experiences, so we will end up with much smarter internet-focused companies.

    I *hate* working for stupid people. ;-)
  • Yes, my argument would also say that a pyramid scheme is not precisely zero-sum unless the value of the underlying asset is constant. In most pyramid schemes, that asset is worthless, or nearly so, so your assumption would make sense. But it would be straightforward to construct a non-zero-sum pyramid scheme by varying the underlying asset value.

    In a zero-sum game, the sum of all player's losses in the game equals the sum of all players' gains.

    So it depend on who's counted as being "in the game" at the time. That was my boundary-condition argument above. And it depends on how the game counters (e.g., shares) are related to the value of the asset they represent.

    Yes, when money changes hands, a debit shows up somewhere, and a credit somewhere else. But that's at the level of individual transactions. In that sense, you could maybe say that the boundary of the market with the rest of the economy is zero-sum. But that zero-sum condition won't necessarily be true of the current state of the market as a whole. Say, in a hypothetical small market, that everyone bought and just held for three years, and during those three years, economic prospects improved greatly. So, the value of assets held within the market would have increased, and if the outside economy were very large relative to the market, share volume would rise to a new, higher equilibrium point once people started trading again. In a zero-sum game, this change in valuation could only have happened if new suckers were lured in.

    Now for dividends: zero-dividend shares, unlike baseball cards, represent a percentage of the equity of a firm (yes, a VERY small percentage, but anyway...). There are good reasons for choosing to pay dividends or using the money to increase the capital retained in the firm instead. Which one is better for shareholders depends, among other things, on the marginal tax rate on capital gains and on dividend income, and on the investors' willingness to bet on the long ball instead of taking the money out right now.

    Mind you, I prefer getting dividends, since a zero-dividend policy also implies that the firm thinks they know better than I do how to invest my money. And I concur that, in a speculative market, I want to have sold all my shares before the balloon pops.

    I just didn't agree with your usage of "zero-sum."

    Had you said "usually not a good deal," instead of "zero-sum", though, I would have readily agreed.
  • Now I don't claim to know what will happen when they are all withdrawing funds not adding to them.

    It is a common misconception that when boomers retire they will sell all their stock. Won't happen, and the reason is that people now live 20-30 years after retirement. If you sell your stock when you retire you will lose out to inflation and you will not have enough money to sustain yourself at the end of your retirement. Another factor that is having a huge long term impact is the fact that the government is retiring bonds - with no government bonds to buy people are missing one of the key alternative investments so will have to put more of their moey into stocks.

    The fact is that the stock market fluctuates. Get over it. Look at the long term trends (20 year time frame) stocks go up and down over the course of an economic cycle out of phase with interest rates. Interest rates have been going up, therefore stocks have been going down. In 1995, when interest rates went down, the market went up 40% in one year. The macro economic fact of life is that technology companies grow faster than the rest of the economy, so should be overweighted in your portfolio.

    People who play the stock market with less than a 5 year time fram are gambling, period. There s no way to predict in advance what the market is going to do over a shorter period of time, so you are placing a wager whose outcome will depend on random fluctuations, just like any throw of the dice.

  • The tech stocks have dropped but who didn't expect this to happen? Company's can not maintain P/E's of 300 nor can they maintain negative Earn/Share. I got out a few months ago and now things are starting to look really good. Most of the companys now have realistic P/E's of 20-60 which is what oil companys have maintained for the past 50 years (approx.). We know the tech industry is going to continue to boom around the world for decades to come. I will feel a lot safer buying back in at realistic prices personally.
  • There was a large scale study last spring, IIRC, that showed that 70% of day traders lose money. The excitement of working independently, maybe making millions, seems to have sucked in a lot of day traders who don't acurate perceive how unlikely it is to consistently make money on short term trading.
  • by HiyaPower ( 131263 ) on Thursday November 16, 2000 @06:32AM (#620423)
    The .com boom was a classic bubble. For those who are interested, Charles MacKay "Extraordinary Popular Delusions and the Madness of Crowds" published in 1841 (and still available), and "Devil Take the Hindmost" published recently, recount the extremes of such excess. The conditions for such a bubble are simple. First, the object must not pay anything to its owner as a dividend. It thus must be an inanimate object like gold, silver, a tulip bulb or a"new technology" like a railroad in the 1840s, radio in the 1920s, internet recently. This guarantees that all gains on the object come from price appreciation (please read selling to the greater fool). Secondly, there must be a market for these and the news of the market is distributed easily. Finally, the supply of the object must be in some sense limited. As the supply concentrates in the hands of those who are looking for the greater fool, the price will escalate. Unfortunately, for them, the speculators will eventually "corner" the market. At this point the speculators are only selling to each other. Sooner or later, someone will sell out at a lower price. This throws the bubble machine into reverse and the price of the object crashes and burns as only the speculators are left to buy it. There is a famous story about a corner on the gold market in the mid 1800s when the market reversed on a single sale.

    That said, I bailed like all getout back in the 1st quarter. Total portfolio up 17% ytd, not bad when the market as a hole (sic) is down.

  • I invested in companies that actually made physical objects that people could buy. That had profits, and a decent business model.

    Back during the .com hype days, my investments looked like dogs. For example, I have a fair amount of drug company stock, having worked in that area- they sucked then. But now, they've been going up the entire time of the .com crash. My high-tech stuff has fallen, but only to the level it was last year. Big whoop: I'm still ahead on all of it. Invest long term- you'll make more.

    End result: I've made money since the crash started. Not a ton, but then again I don't expect 100% return/year.

    Eric

  • I left my one employer early in 1999, after many years. A year later they changed their name and IPOd.

    Unfortunatly when I was working there the company was in the services area - troubleshooting networks, implementing solutions and other technically proficient things. Unfortunatly, due to the incompetance of the person in charge of my department at the time, we lost a lot of customers and didn't gain new ones.

    Meanwhile another team in the were working on a web server 'intranet' product, whilst abandoning the installation of firewalls and web servers as being 'too hard'.

    Eventually the work in my department became no more than a call centre. I was transferred to the support team for this new product, and discovered it to be utter junk. Even the customers using it hated it. The product was more marketing than programming. I spent a few months on that team, handling customer support calls, then left to go elsewhere. I'd have stayed longer if they'd let me get my hands dirty actually solving their development problems.

    A year later they IPOd on one of the minor UK exchanges, and offered a stock option. Their stock price reached around 3.75 times its debut price, but has since fallen to twice its debut value. The software itself is still junk, and it appears that most of the development team have left as the version number of the software has hardly changed in almost 2 years.

    The division I worked in seems to have closed down. The website hasn't changed in 18 months, around the time that the person responsible for all the problems was fired. Everything is now this one piece of software.

    I'm just waiting for their market price to crash.

    And what am I doing now? I'm involved in the development cycle for stock-market dealing systems.

  • > How about the stocks that don't offer anything? Red Hat?

    Yes. As the original sentence is in a conditional statment, you can put those too if you want. And amazon. And rambus. And microsoft. Whatever you want.

    Btw, did anyone already noticed that while ESR is a stock symbol while there is no RMS, nor GPL ?

    http://www.cnetinvestor.com/quote-fast.asp?symbol= ESR [cnetinvestor.com]

    Cheers,

    --fred

  • by Icebox ( 153775 ) on Thursday November 16, 2000 @02:58AM (#620431)
    This type of performance isn't really all that unusual for young industries. Investors are always looking for the next big thing and many will ignore what they know about markets on the hunch they might be getting in on the ground level of the next Microsoft. The lure of the upside is enough to make them forget about the need for a good business plan, P/E ratios, earnings per share, or any of the other things that typically figure in to whether a company is valued correctly by the stock market.

    Since stocks are tough to predict is might not be completely accurate to say that this is the end of the tech boom. Another could be around the corner. This is probably just the market shedding its excess baggage, competition is grew because there were more companies getting in so the weaker ones had to fall off. You could also say that the early predictions of the growth of the online market itself were overly ambitious, something that didn;t exactly help keep the enthusiasm high.

    Luckily there are companies and people out there who aren't in this for the money. Good thingd will continue to happen on the internet, they just might not be profitable things.

  • The primary effect of the drop in tech stocks is the increased wariness of investors in new and, potentially, innovation ideas. Media hype is predicting the end of a 'dot.com bubble', and this seems to be interpretted as a complete collapse of the internet and e-business industry as a whole.

    What is more likely to happen is a simple weeding out of the poorer companys, those without a solid business plan or revenue model. Certainly this'll include some major players, boo.com is a prime example. Whereas, a year ago, investors would throw millions at any project that ended in dot.com now they're going to actually look more closely at the real-world prospects of an idea. I reckon this is a positive thing. The recent glut of internet companies that are little more than a complete waste of time should cease, and maybe investors will have more time for the more innovative ideas such as Indrema and such.
  • by jackb_guppy ( 204733 ) on Thursday November 16, 2000 @03:08AM (#620436)
    No different than dropping coins at Vegas.

    For all the winners there are losers. Remember you don't win unless there is some one out the BUYing the stock from you. Or maybe two or three or four (depends on how high).

    For those older hand with stock options - cashing out - making look like a great thing for those just joining - but is there a future?

    Is the stock market the next Social Security scare?

    Remember to retire with those 401k - the stock needs to be sold to some one. Who will be buying when the first 1/4 of the bady boom goes by, the second 1/4, the third and fourth?

    I was reading that if Microsoft had to report the outstanding liability of stock options on thier balance sheet (better: deffered companision) Since MS is to pay the difference between the option and the going price. they would be setting at a net LOST for last year.

    Isn't math fun?
  • I haven't been affected directly in terms of my job/career since I work in academia, but I have been investing most of this--err rather the previous--decade. The tech stock scene looked like a gold rush. You had a lot of hopeful prospectors rushing in hoping to make a million on the the new big thing. Most of them went or are in the process of going bust because the new big thing wasn't that big. It was and still is big, but not big enough to support anyone who's read Small Businesses for Dummies and can put togehter a business plan. So, the people who are still around and going to be around are either the true visionary innovators or the people who build the roads and provide the services that all the prospectors use. So, the dot coms are coming apart, but the Ciscos, the Oracles Red Hats, and the rest are still around, and getting bigger. So, as an investor, I had healthy mix of things and made a quite a return on investments during this period, but because I have a mix, the downturns didn't hit me very hard. The tech stock boom on the NASDAQ has helped turn a modest savings into a sizeable nest egg, but the diversity of my portfolio has cushioned the down turns. I'm doing good as we come out of this rush, and looking for the next opportunity to put a small part of my money in.

    There's another flip side to the tech stock boom. As the 1990s progressed, the number of new technologies I had to learn at any given time skyrocketed. The boom meant that a lot of people were developing a lot things. The past five years turned most of computer science upside down and shook it. When I last looked at my resume, I have well over a dozen languages listed. Most of these I've learned in the past three or four years. The other affect of the boom is the amount of new information services you see people offering at all levels and all sectors. It's been a wild ride from a purely technical point of view too.

  • I had a stable job at a large brokerage firm, but felt I was missing out on the chance to get rich quick by not working at a dot com. So four months ago I left the stable job for a job at a pre-IPO dot com startup. I received a decent salary jump and options. I knew it was a gamble, but I kept hearing stories of 25 year old millionaires and I wanted to be one of them. Well, about a month ago my company laid off almost half of its employees (not me though), and the future here doesn't look much better.

    In the long run I guess it worked out for me. The brokerage firm I worked for asked me to come back and I agreed. I'm currently finishing up my two weeks notice at the dot com. I'm getting another bump in pay and a promotion to go back. No, I didn't become a millionaire, but I got two large increases in pay and a promotion in 5 months and will be back in a stable job.

    "and the only social disease I've contracted is bitterness!" - Collider [collider.com]
  • I worked for buy.com, their stock IPO-ed above $30/share and my position was, on paper, worth over $2 million. Then the market tanked, buy.com continued losing money, B2C became out of fashion with investors, and by the time I was allowed to actually sell some stock 6 months later I was under water...$2million to $0 in less than 6 months. Thank heavens I never lived like a millionaire like some other employees who took out huge loans hoping that they could pay them back once they could cash out their stocks.
  • by ZoneGray ( 168419 ) on Thursday November 16, 2000 @07:22AM (#620443) Homepage

    Being part of the management team of a start-up is a truly unique experience and I would do it all over again for that reason alone.

    Interesting observation. I went to work for a heavily-funded startup about a year ago. Management there was composed of former middle managers at some established companies. And they were very competent people, at least in a larger environment. Nice people, too. But over the course of the the last year, it became apparent that, while they may have been very competent working in an established company, none of them had ever run a small business. They thus lacked the perspective one gets from having all the weight on one's own shoulders; if one or more of them had ever run a neighborhood dry cleaner, some things would have been done differently. As a middle manager, one learns to cover one's tail, to do the proper analysis, make the safe decisions, and you're somewhat insulated from the effects. The process is more important than the results, as far as career advancement is concerned. In a startup, the results are all that matters.

    That said, the compay's business plan was doomed, simply because investors had wildy overestimated the market. So that company wouldn't have been profitable even it had been run by Ellison and Gates.

    ... at the end of the roller-coaster ride, I can say that I have no regrets.

    Likewise, I've talked to many other former employees, and few have expressed any regrets. The only ones who were really hurt were those who left good jobs at established companies seeking riches. But those of us who went in with realistic expectations (I always expected to be laid off, I just figured it would take a few months longer), enjoyed the experience, made some great friends, and the fact that I was able to come away with no bitterness really helped when I went job hunting.

  • That, or their business plan said something like: "After we gain a monopoly in our area, then we'll REALLY rake the customers over the coals."

    Later,
    Erik Z
  • A stock need not pay a dividend to return value to an investor. Many stocks are evaluated based on their P/E ratio, and rise proportionally to earnings. Rather than pay dividends, such companies retain the cash, giving the investor the choice of when or when not to take taxable income. This is especially good for investors who might have to pay a higher rate on dividends than they would on long term capital gains. In fact, many consider dividends to be "old fashioned" for this very reason.

  • by f5426 ( 144654 ) on Thursday November 16, 2000 @03:10AM (#620452)
    > I think that we may be able to conclude that the Internet/Tech Stocks bubble has finally deflated

    I think we are not able to conclude anything. The Internet/Tech Stock 'bubble' may still be present, and can put the world economy in a recession cycle, when the averge john doe will understand that the money he borrowed to day-trade have disapeared. Or it may rise again, when all the stupid (pets.com) or badly managed (boo.com) startups will all have failed and the few remaining will start trashing brick-and-mortar economy.

    You cannot predict anything by looking at the stock market index. No matter how hard you try.

    Cheers,

    --fred
  • by fantomas ( 94850 ) on Thursday November 16, 2000 @03:10AM (#620453)

    no problem for me.

    Being one third owner of a tiny internet company (5 employees total), business has been good for the last year and we've paid ourselves. We're thinking of investing in a new kettle and maybe another monitor and a keyboard this month. The strength of our company position in the boom economy means we are tentatively expanding to buying two types of coffee and maybe, just maybe, three types of chocolate biscuits. Might print some business cards to diversify our holdings. Been following NASDAQ closely. ;-)

  • by sammy baby ( 14909 ) on Thursday November 16, 2000 @03:12AM (#620456) Journal

    The way in which the overvaluation of tech stocks affected me most was that people I meet who aren't familiar with computers keep going, "So. You're in computers. Are you rich?" And I would say, "No. I work for a university." And they'd say, "Oh." And that was pretty much the extent of their interest.

  • I think that we may be able to conclude that the Internet/Tech Stocks bubble has finally deflated
    I think we are not able to conclude anything. The Internet/Tech Stock 'bubble' may still be present, and can put the world economy in a recession cycle, when the averge john doe will understand that the money he borrowed to day-trade have disapeared. Or it may rise again, when all the stupid (pets.com) or badly managed (boo.com) startups will all have failed and the few remaining will start trashing brick-and-mortar economy.

    You cannot predict anything by looking at the stock market index. No matter how hard you try.

    I agree with you that we might not be able to conclude that the tech stock bubble has completely burst yet. But I am broadly skeptical of your idea that you cannot predict anything by looking at the stock market index. In particular, I would draw your attention to this graph, [yahoo.com] which compares the overall returns of the NASDAQ composite and the S&P 500 since 1985. Observe how closely one tracks the other, with a few interesting exceptions: tech stocks suffered more in the early 90s recession (no big surprise there), and seem to have benefitted more from the late 90s gold rush...except for that last dip there, which has actually dipped even further recently. Personally, I'm a strong believer in the efficient market hypothesis, so my guess is that the long-range performance of the NASDAQ will not be any better than the S&P 500. (Of course, part of this is self-fulfilling: as particular NASDAQ stocks get added to the S&P index, the two will grow closer together, but the other part is a belief that fair valuations for high-flying stocks with no earnings and iffy prospects will be found to be even lower than you see today.) The market as a whole is so ruthless, in fact, that it's not clear to me that the long-term valuation of any given stock will outperform the index.

    So let's choose a horrific example for my hypothesis: compare Microsoft with the S&P 500 over the last 5 years. [yahoo.com] One of these has done waaaay better than the other over that span, and it ain't the S&P 500. But, once again, the two have been closing steadily over the last year or so, and anti-trust case or no anti-trust case, I fully expect MSFT to come closer and closer to the index as investors realize that there's no particular reason why MSFT should trade at a multiple of twice or more what the market trades at. This isn't to say that Microsoft is going to do poorly or anything, only that their stock prices will start to resemble more closely that of any other company doing as well as they have as the meaning of the "tech" adjective is seen to be empty, in and of itself.

  • by Zoop ( 59907 ) on Thursday November 16, 2000 @03:34AM (#620467)
    I, too was working in a classic dot.com in May, just as the bubble burst. No problem, I thought, this company actually has a workable idea that could be profitable within two years, and they aren't just another portal or shopping site.

    What I hadn't realized was that everyone except the CTO were part of the idiots that think the internet is a magic money machine where the rules of good business don't apply. You had an exec from a failed department store who was nominally a CFO acting as a COO, a COO acting as a CEO, a sales staff who would simply tell the customer anything they wanted to hear (and charge them a tenth of the cost, literally), whether or not ANY company could do it, let alone ours, and no one other than the CTO had ever been in a tech company, even peripherally.

    As many people here know, a good tech department does not a well-run company make. Soon the tech staff became the scapegoat ("Well, if they would just work harder," said the marketroid, as she left at 5pm on Friday not to be seen till 9:30 Monday), people were fired right and left to make up for the investor shortfall, and the workload didn't decrease.

    Somehow I'd remained quiet enough that I was deemed "safe" because I wasn't in my early 20's and therefore sympathetic to management (wrong). I got a nice promotion and pay raise which enabled me to find a company that was self-financed (that's a good thing) and more along with what I wanted to do to advance my career.

    The silly politics at the dot.com had started long before the bubble burst, and this simply forced the issue. So it got me out of a bad situation in record time while putting me in a higher tax bracket and a nice spot on the resume. Oh, and now I'm the one who goes home at 5 (well, 6 or 7, but not 1 or 2). The new company has no marketroids, and everyone comes from both a tech and a substantive background in the field we're in.

    Yes, I benefitted from the reality check. The bubble is dead, long live the tech sector!

The use of money is all the advantage there is to having money. -- B. Franklin

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