RealTime IT News

Rationality Is Breaking Out All Over

Internet hacker attacks usually result in two things: Lots of hyperventilated media coverage and a run-up in 'Net security stocks.

That's why some investors who hoped to cash in right away on last week's "I Love You" e-mail virus might feel about as lucky as the Filipino suspect arrested in Manila over the weekend.

Through early-afternoon trading Monday, nearly every security stock was down, along with the Nasdaq, which was off nearly 2.5 percent by 1 p.m.

Firewall market leader Check Point Software and Secure Computing both were down 4.5 percent early Monday afternoon, while WatchGuard Technologies and SonicWALL each had fallen 8.6 percent. All four sell products designed to protect computers and networks from unwanted intrusions.

Other security companies also have seen their stocks slide by Monday afternoon, including VeriSign , ISS and Entrust Technologies , which were down 3.4 percent, 4.8 percent and 1.7 percent, respectively.

The market's lack of fervor for security stocks in the immediate aftermath of what may be the most damaging and costly e-mail virus ever distributed on the 'Net stands in sharp contrast to the feeding frenzy among investors in February, after hacker attacks on major Web sites worldwide.

Back then the security sector shot up 25 percent in the first days following the attacks on sites such as Yahoo , and eBay , and the sector continued to climb for several weeks after.

What's the difference between then and now? For one thing, many momentum investors have been knocked out of the game in the past month due to widespread margin calls in late March and early April.

But it also could be that the spring correction, at least in the short-term, has made investors less impulsive and more focused on the long-term. Which means fewer investors are rushing to log onto E*Trade or call their broker in response to every banner headline and breathless news report about anything to do with the Internet.

In the long-term this mentality bodes well for Internet stocks, since it helps keep froth and speculation to a minimum. But given the innate nature of investors, don't bet on this outbreak of rationality to last for long.