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Friday, February 5, 1999 Published at 22:21 GMT

Business: The Economy

The Internet stocks: There's gold in them there hills

There are few new frontiers left, but the Internet is one of them

By BBC New York Business Correspondent Patrick O'Connell

Pack your pick-axe and head to the new frontier ! Dig in Internet Mountain and make a mint !

Some time, long ago, there was no internet. Some time in the future some seem to think there will be little else. Somewhere in the middle are the speculators, rushing into internet stocks, and yes, many have made a mint.

All this we know.

Here are five predictions of what may happen next.

  • Yes, there will be a correction in the value of internet stocks.
  • Yes, the internet is going to mean much more for business.
  • No, not all investors will be scared off by a slump in stock prices.
  • Yes, the prices could then start to rise again.
  • Yes, we just might be back where we started.

[ image: E*trade suffered its own computer problems over the last couple of days]
E*trade suffered its own computer problems over the last couple of days
Here are the facts.

"The Internet has changed the buying practises of people...," said William Daley, the US Commerce Secretary recently. Announcing a new survey of on-line retail sales figures, his department cited some statistics compiled on Wall Street.

Internet shopping averaged $3 billion in 1997, $9 billion in 1998 and is expected to reach $30 billion by next year. "Can you imagine if the rest of the economy tripled every year ?" asked Daley.

But can you imagine if internet stocks simply tripled THEIR value in a year ? Some have done that in one day, often the first day of their traded life. All this includes the firms that still make no money at all.

The traditional methods of valuing stocks against future earnings have evaporated when it comes to the big movers in cyber-land.

Brokers under strain

On-line brokerage firms in the US have clearly felt the strain. Amid massive trading volumes, some services have shut down for minutes, others more than an hour.

The business magazine Forbes recently estimated that an "army" of five million Americans regularly trade on line.

For many of them the internet gold rush has been real.

" I just play on momentum. When I see the momentum going and the volume in the stock taking off, fundamentals don't mean anything at that point."

Nicholas Birbas is 25-years-old and began investing his $1,100 in October of 1998.

He says it's now worth $215,000. He's given up his job as a waiter and trades each day from home over the Internet. His portfolio is mostly made up of internet stocks, which he rarely holds overnight.

He does not see many of the stocks as a long term investment because he thinks many are overvalued.

Greenspan's siren sounds

There is everything old and everything new about what's happening to cyber stocks. Investors are excited by the growth of the Internet and by its spreading influence.

No less an authority than Alan Greenspan, Chairman of the US Federal Reserve recently examined some of the underlying principles.

"Is there some hype in this? Of course there's some hype, but there is at root here something far more fundamental and indeed it does reflect something good about the way our securities markets work.

Namely, that they do endeavour to ferret out the better opportunities and put capital into various different types of endeavours prior to earnings actually materialising.

In the same testimony he said many ventures would fail."

[ image: Internet trading hits the popular comic strips]
Internet trading hits the popular comic strips
Like a company with a new product , investors have moved to back the idea.

This means that in a very real sense, it is their money which will help build new advances on the web and employ new talent to develop the product further.

This product is the internet, where no-one owns an overall patent and the speculators do believe there is gold in the hills.

Brave new frontier

So we know all that about the US market for internet stocks. The current question is what is really going to happen to real companies next ?

What about those businesses at work in regions where far fewer people are on-line ?

What too of the fate of the small companies throughout the world with new ideas for the web ? The likely answer is that investors or rival firms will get out their chequebooks. Some will succeed and others will crash spectacularly.

The bloated values of Internet stocks in the US are an old story. For some people it will end in tears. But it won't stop others from believing in the Internet.

Are you one of them ? If you are what are you going to do about it?

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