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RealTime IT News

Fear Of Flying, Fear Of Falling

It's getting downright nasty in some of the online stock chat rooms. Investors are at each others' throats as the sharp downturn in Internet stocks that began about three weeks ago shows no signs of reversing.

If you're holding long on a stock that's falling fast, you're called a sucker by gloating short-sellers. If you're dumping stocks, you're dismissed as panicky and weak by true believers (a dwindling group in every chat room I visited, by the way).

The management of any number of Internet companies is called incompetent or, even worse, callously unconcerned about shareholders. Four-letter words are exchanged, mothers are insulted and sick references are made about the recent murders of 12 people in Atlanta by a distraught day trader.

Ongoing concerns about the Federal Reserve raising interest rates to prevent inflation are cited as the chief culprit in the market's swoon, but I think that only partly explains the steep declines that have battered Net stocks since mid-July.

For all the locker-room bluster from investors about how Internet companies will create a new generation of mind-boggling wealth, I believe there exists a nagging fear among Net bulls that the nay-sayers and killjoys are right: That it's all an illusion, that Internet business models are not grounded in economic reality, and that the bubble is about to burst.

Of course, it doesn't help that the bears invariably trot out their smug "I told you so's" when Internet stocks nosedive. They did so last fall, they did again in April and May, and they're doing so now.

Conversely, when the Internet stock market is going full throttle and investors are intoxicated by their own forward-thinking brilliance, the "fundamentalists" are ridiculed as dinosaurs who just don't get it.

In this highly charged atmosphere, it's hard for investors to maintain the proper perspective. That's when sound strategies are discarded, stampedes are begun and money is lost. And that is what's happening now.

There is good news and bad news about the current Internet market. The good news is that it's much better than it was last fall. Take eBay, for example. The online auctioneer has seen its stock price plunge from $215 on April 29 to $75.75 Wednesday, a 65% loss. However, Wednesday's closing price is 639% higher than the $10.25 EBAY shares were trading at last Oct. 9, just a few days after the company's uninspiring IPO.

The bad news, of course, is that since the market for Internet stocks is much better today than it was back then, we know for a fact that things really can get worse. And these days, that's a painful notion to contemplate.

The Internet economy is here to stay. Yes, many companies are overvalued now, and yes, there will be many losers. But there also will be many winners. As has always been the case, the challenge for investors is to figure out which companies those will be. No one said it would be easy.


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