Mania Tear Has to Fall
The Week in Review -- November 20, 1998
by Jerry Thomas (

Greetings, Fools.

The Los Angeles Times has been making rather free use of the term "Internet Mania" of late. Last Saturday, for example, a page-one item appeared below a headline that read, "The Stock Craze That Won't Die: Internet Mania Heats Up Again." The following Tuesday there was another piece; this one's headline read, "Small Investors, in Two Camps, Driving Internet Mania."

So there it is, officially official. Henceforth, banish all doubt: It's a mania. And I am not unsympathetic to the sentiment, either. Shares of (Nasdaq: AMZN) saw a trading range of more than 50 points this week, surging more than 20 points Friday morning alone on news of a 3-for-1 split. If that's not a mania, it is certainly mania-ish. I'm just surprised to see the conclusion stated so baldly, so right-there-in-the-Times, so nonchalantly rubbing shoulders with all the other uncontested facts that make up my morning paper: This ambassador went to Zimbabwe. That government functionary reports a fluctuation in this statistic. And the market for Internet stocks is -- certified and authenticated -- a mania.

Well, how do you argue that it's not a mania? Look at (Nasdaq: TGLO). IPOing at $9 a week ago, it shot up to $97 per share on its first day before collapsing like a routed army. A lot of small investors got hurt. For proof of that, one need only read the postings on our TGLO message board, with its messages sounding something like dispatches Napoleon might have sent during his retreat from Moscow. The board spawned Tuesday's Post of the Day, in which our own Nico Detourn (TMF Nico) offered some solace to the stunned speculators who thought this issue might be a quick ride to some fast capital gains. Alas.

But there is another side to this story. That can be found in the Fool Portfolio (soon to be rechristened The Rule Breaker Portfolio), which is enjoying being long in the Internet sector these days. Perversely holding through the routine (let us not mince words) crashes these stocks suffer (perhaps as often as two or three times per year), the managers of this portfolio are downright giddy to find their net asset value surging to a year-to-date return teasing the triple digits.

A mania? I dunno. How many times does the Internet sector have to come back from the dead before it is deemed not a mania? And if not a mania, how else do we make sense of these late events? Is "mania," or "bubble," or "tulip" the only proper template to fit over this highly uncertain set of observed conditions?

Stocks that comprise the Internet sector will see sharp corrections over the next ten years as the industry grows and takes shape. Some companies will be great winners, astonishing everyone with their performance. Others will be tragic losers, the shipwrecks lost in the exploration of this new world. And that is as bold a prediction as I am willing to make. As for what might happen in the short term, in the world of the day-to-day, your guess is as good as mine.

This week the market's attention was focused on two issues of some passing import. First, the cut in some key interest rates courtesy of Alan Greenspan and his colleagues at the Federal Reserve. Eyes, too, are following the fate of one Mr. Bill Gates, commander of Fortress Microsoft. I'm a Mac user, so harboring a playful disdain Bill Gates is part of my fun, much in the same way I enjoy my scorn for the Minnesota Vikings (who, incidentally, are poised for a whupping when my man Brett Favre comes to town this Sunday). This is only part of the reason why you might enjoy Rob Landley's four-part examination of Microsoft's woes featured this week in the Cash-King Portfolio. Microsoft (Nasdaq: MSFT) is a Cash-King holding, but Rob is the lone dissenter among the portfolio's managers. Beginning Tuesday, Rob dissects Microsoft's troubles: the litigation, the faltering product cycle, the company's historic lack of innovation, the threat faced by Linux, and so on. The rest of Rob's reports follow on Wednesday, Thursday, and Friday.

For fun, this week try Attack of the Shareholder Perks, by Rick Aristotle Munarriz (TMF Edible). I've said it before: some of the rewards of ownership have nothing to do with a dividend yield or capital gains. Rick explores the fun stuff that some companies give to their shareholders just for being owners, from chewing gum to free dessert. Other doings: this week, the Boring Portfolio announced its intention to sell off its position in Atlas Air (NYSE: CGO) -- Dale Wettlaufer explains why in Wednesday's Boring Portfolio Report. And this week's Dueling Fools is a barn burner: Fools Rick Munarriz and Yi-Hsin Chang (TMF Puck) resort to fisticuffs to settle their differences over warehouse club Costco Companies (Nasdaq: COST). Okay, if not fisticuffs, at least poetry then.

Finally, let me remind everyone that next week is Thanksgiving, and that marks the launch of our second annual Fool Charity Fund Drive. Last year Fools like you helped us raise over $120,000 for Share Our Strength, an organization dedicated to helping alleviate the problems of poverty and hunger in our country. Top Fool David Gardner explains it all in Thursday's Fool Portfolio Report. If The Motley Fool (which comes to you free of charge) has done anything to enrich you over the past year, let me encourage you to give some of that back to help people who really need it.

Thanks Fools.

Until next week,
Fool on!



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