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SouthSeas coworker came into my office today to declare the boom in Internet stocks is over. This is certainty, he said, because he’s finally bought some — nibbled at a few, is what he said. Ken is chief counsel where I work, a lawyer from Maryland, and our conversations about stocks often begin this way. He knocks tentatively on my door and asks, “Is the psychiatrist in?” Since this is early in a new year, I guess our tradition will continue. The problem, it seems, is his portfolio isn’t pulling down the gains he and most of the world have been reading about. “I know it’s crazy,” Ken said. “I’m making money, and I’m not happy. All I can think about is these other people who are landing whales, and I’m catching minnows.” Minnows, in Ken’s case, are twenty percent–plus returns his retirement account has been cranking out these past several years. It’s a rate of return that’s doubling his money every three years or so, without taxes. I told Ken he came to the wrong doctor if he expected me to make sense of Internet mania or, for that matter, a market that won’t quit at twenty percent returns. My problem, I explained, is that I took the B-school courses in portfolio theory, and nothing I learned is worth anything in that world. I learned what traditional security analysts learn — fundamental analysis. You examine a company’s earnings and assets and dividends and project what the stock “should” be worth in five or ten years if everything moves in a straight line, which, of course, never happens. Then you discount its estimated growth back to today and compare it with the growth rate implied in its present price. If you like the comparison , you buy the stock. These analytical tools learned at effort and expense are useless when deciphering companies in the ether of the Internet because they have few earnings, profits, or assets. What these ......................................................................... A companies may or may not have is the chance to bet a few Thaler on Gutenberg before he sells his first Bible. They are companies like Amazon.com, Internet purveyor of discount books. Ken groaned when I mentioned Amazon.com. He watched it run from $24 a share to more than $300 without owning any. An investment of $2,400 would be worth more than $30,000, except Ken didn’t invest. Not at $24 or $48 or $96 or $192. Even if he’d bought at $192 a share, he’d almost have doubled his money. Instead, his portfolio won’t make him a millionaire for three or four more years, a geologic crawl in this market. “I could be living on a yacht in the South Seas,” Ken said, but he was making fun of himself. Ken knows who he is, and that’s a decent, dependable, hard-working father and husband who will retire comfortably soon because he’s saved and invested diligently. Thing is, Ken’s right, mathematically. Having done thus and so, having put your money here after moving it from there — statistically, mathematically, sure, Ken could be living in the South Seas. Perhaps on a yacht next to my father, who in my version of this story never sold his BerkshireHathaway . What Ken wanted, of course, was for me to agree we’re being reasonable , and that I could do. After all, IBM has honest-to-goodness earnings, assets, and dividends, yet its stock underperforms every ditdot -com run by a billionaire GenX’er who could close shop by disconnecting the electricity. Except, of course, the crazies who ignore every principle of prudent investing are making money, whereas Ken and I, for now, have only our probity to console us. Amazon: even the name invokes the South Sea Bubble of the 1720s, when Englishmen coursed the globe and returned with pineapples and silks and stories of plantations and riches. Giant trading companies vaulted up overnight — today we’d call them supranationals. Investors off the sidewalk turned pence into millions, like investors in this market, through brokers who often didn’t reveal what they invested in or where — what we call a hedge fund. Where is this cyberspace place, anyway? What’s the difference between the Internet and the South Seas in the eighteenth century? The South Seas may as well have been cyberspace back then. Ken and I catch each other looking at...

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