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10/5/1999 money money money money

My coworkers have put a lot of money into a "sure thing" -- they bought shares in a tech-stock mutual fund. This mutual fund consists entirely of internet stocks, and high-value internet stocks on top of that. The corporations that the fund includes are Yahoo, eBay, and several others.

Normally, an investor buys into a mutual fund for the long-term profits that come from investing in diversified companies with a history of consistant profitability. It's safer, might not have the profits (or the risks) of investing on your own, and allows you to gain profits from companies that may normally be too expensive to purchase individually. When you combine millions of dollars in stocks in Proctor & Gamble, IBM, copper foundries, aluminum producers, and Sears, the profits are divided up between a thousand investors, providing a stable profit for years to come.

You can't debate the current profitability of internet investments. Lots of people are making a _lot_ of money in putting their money into high-technology startups and sitting pack to wait for the checks to roll in. What people don't see is that the people making lots of money off tech stocks aren't making their money off buying a couple hundred dollars in stock and waiting for the company to increase their profits. The people making the most money off the internet already have a LOT of money. They are venture capitalists, career investors, and people who make even more money off Proctor & Gamble, Sears, and currency speculation.

There are the lucky few who happen to pick up a few stocks in a lucky company who is lucky enough to fit into a niche where they make more money than all of their competitors -- a Netscape, a Yahoo, an ICQ, or an eBay. Those are the lucky people -- the reason the big investors don't make all ther money off high tech stocks is because there is a lot of risk involved in technology.

The World Wide Web we know today has only been around for about 5 years. The lucky few internet companies may be making a lot of profit today, but that's just over 5 years. How long is the world wide web going to continue to be the premiere venue for high tech companies? Will Yahoo remain to be a central point on the WWW if the WWW is no longer HTML based? Will the advent of Java eliminate the need for a web browser? How can AOL continue to exist if free internet access & free internet communites are available to everyone? The problem isn't that the future will destroy the current profitable companies. The problem is that the future _will_ destroy some, but not all, of them. The overall problem is that you just don't know.

Next -- where are the profits gained from? Microsoft makes it's money from purchasers of it's server software, office suites, games, and operating systems. Sun Microsystems makes their money off servers, routers, and high-power applications. IBM deals in servers, personal computers, networking hardware and business systems. They all makes lots of money, have years of establishing themselves in the market, and are considered standard in their industries. Yahoo makes their money off advertising. Netscape makes their money off server software. eBay makes money via micropayments for advertising and sales on their site. A lot of new companies making the big bucks are one-trick horses. IBM, Microsoft, Sun, Hewlett Packard, and 3M all have multiple profitable products. If one aspect fails, there are others to make up for it. If people stop visiting Yahoo, the advertising dollars stop and Yahoo is stuck reinventing itself. A company without a built-in contigency plan won't have to worry about implementing the contingency plan in the future. It is a company that will continue to produce a profit regardless of changes over time in the industry, and it will continue to make it's money in 15 years after the internet has gone through any number of changes & recreations. Remember, Microsoft Windows has only been around 10 years, Graphical user interfaces have been commonplace for 15 years, and personal computers have only been a houseold appliance for 20 years. Apple almost killed itself by expecting personal computers and graphical interfaces to be the long-term profit building objective. A company without future alternatives for profit is not a company to buy stock in.

The regular update from my coworkers is that their tech fund is losing money. Not every day, mind you -- on bad days, the news is worse. By limiting themselves to technology funds, my coworkers watch the stock market every day -- the slightest change in technology stocks from day to day has a significant impact on their investment. These people aren't high-power investors. They hardly even know what the Fund's holding are -- they know the names, but not always what the companies do. These stocks aren't the old standards. These are companies with only a few years of experience, taking advantage of the current climate, being the first on the market with their new and exciting products. If you are relying on your luck to gain profit from technology stocks, you are better off putting your money in a savings account. You may not make much of a profit, but you sure aren't going to lose anything. Buying tech stocks and expecting the cash to flow in won't happen for you.

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