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March 11, 1999

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Subject: The Big Picture
Author: jaybad

But you REALLY understand venture capitalism because you yourself invested in CMGI. You understand keiretsus, scalability, how vision and strategy pay off, and so forth. And you can CONTRIBUTE in your new VC venture.

Ain't it great! The diamond in the rough! I'm trying to fight feeling too euphoric, but damnit! When you're right! You're right! I feel that CMGI is at once the most speculative as well as the safest Internet play around. How Zen.

Increasing returns to scale over time. Boggles the mind.

Ah...the power of compounding. Understanding it is a powerful thing. Unfortunately, most people I talk to about simple vs. compound interest never really make the connection between:

Saving + Investing long term = Big Compounded Gains (ex: Anne Scheiber. $5K in '44 worth $22 M in '94 through LTBH)

...even if you make mistakes and see a few recessions and catastrophes patient investors will succeed in the long run (or so I hope). Why don't they teach this in our public schools? Or even college? Long term investing would make a great freshman required course :) I encourage my co-workers & family members to save & invest regularly. I tell them to take small positions in Internet companies if they're willing to take a long term view on these companies.

Sorry this post is so long but if you bear with me, I'd like to share some ideas/insights that can be improved on by others which might increase our understanding of how our investments fit into "The Big Picture." I also think that I have a few ideas that might be "diamonds in the rough" for my fellow travellers (esp. y'all that're even greener than me in investing with CMGI)

"The recent volatility has shown that a lot of investors out there haven't bought into the panic that the "bubble" has burst and have held onto their shares through some gnarly declines."

Understanding that over the long term, many key corporations will benefit from the growth of the Internet is a good thing. Understanding that certain key corporations will evolve into mega-corporations is an ephiphany unto itself. By doing our research & due diligence I feel that we can improve our chances so that it doesn't sound quite as random as "The Lottery Principle" espoused by Greenspan as his reasoning about the euphoria surrounding certain Internet stocks.

The recent volatility has shown that a lot of investors out there haven't bought into the panic that the "bubble" has burst and have held onto their shares through some gnarly declines. This means that many, many small investors actually *believe* in the long term potential of the Internet companies they researched and invested in. (Myself, I've ridden through 3 'net corrections since I started about 9 weeks ago! What a ride!)

The "Internet" companies that stand the best chances of succeeding to this mega-corp level by evolving electronic commerce, communications & content IMHO are: AMZN, AOL, ATHM (with a whole lotta help from T), EBAY, YHOO, & lil ole CMGI. Other combinations with GE, NBC, CBS, USA, Disney, Fox with companies like Lycos & C/Net may offer up new giants. The initial land grab is already done. Other companies may join these lofty ranks but its possible that the window of opportunity is rapidly closing (at least in North America).

[Side Note: In the future, its possible that a few foreign corporations will somehow fight off the depredations of these growing giants in their region and carve significant niches for themselves. Japan may have the next AMZN story. Some guy in France could be the next EBAY. Looking back, North America has been the leading innovator of the last 100 years. Looking forward, with most of Earth's brain trust in the US, its likely we'll see the majority of innovations coming out of American tech industries. Meaningful innovations will occur in other countries but this planet's best business minds are concentrated in the US. Other bright spots innovation wise could be China, Singapore, Taiwan, Korea, India & handful of European countries like Ireland, England & France (esp. if thy can overcome nagging problems slowing down Internet penetration). We have yet to see what these countries will do when they "adopt" the Internet en masse.]

These companies will redefine what it means to be a media company. If you think about it, every one of these companies have some aspects of a keiretsu. Behind the scenes as well as publicly they network their companies so that every one is on the same page within the "keiretsu." What can't be bought can be networked with. Accretive deals are done. Partnerships are sought. Momentum is kept. The enemy of my enemy is my friend. At this early stage in the game, every company is doing everything they can to increase their market share

Some of these companies *will* succeed to become mega-corporations with market caps larger than even MSFT. With huge market caps, these giants will be able to buy and sell small countries let alone small promising companies. Its just the natural progression of things. One day, eventually (if MSFT can maintain relevancy in a post-PC world) MSFT will be the first trillion dollar company. Moving the market cap upwards on a cap this large is difficult but +300% growth from today's cap would bring MSFT close to this milestone. (Which is why I have no money in MSFT because that cap is pretty unwieldy in regards to making significant returns.

If the world can keep from falling apart (I like to add this blanket stipulation on my far-off musings) I see no reason why any one of these companies (or combinations/permutations) won't enjoy similar gargantuan market caps.

This is "The Big Picture" as I see it. In a nutshell, this is the mindset: The master plan, if you will. The CEO pulling the strings will continue to add new companies to the fold; all pieces of the puzzle making up the CEO's vision with the end result of making money on the Internet as its penetration rates improve the economies of scale thereby validating their current market caps. I've stated before that with AOL's subscriber base of 18 million (2 mill from Compuserve) what will AOL's market cap be if/when the Internet population grows by a factor of 10? Or a 100? If they could somehow keep up the same level of market share they currently enjoy we're talking about 180 million to 1.8 billion addicted consumer/users. What kind of market cap will the market reward AOL with then? "How now brown cow?"

"All of these companies walk a fine line. The market will spank them down hard if they falter badly against competition and innovations."

Dim your eyes a bit & try to look a down the road: AOL really everywhere. Imagine EBAY with regional servers leading you to the best "garage sale" in every country. You'll be able to just drive across town to pick it up or take a look at the item in question. Or AMZN almost automatically taking care of your groceries, prescriptions & entertainment needs making all of them more convenient. YHOO evolving into a personal bot who takes care of day to day things for you as well as gives you the information and news you want. Or CMGI with big stakes or outright ownership in 15 or 20 big cap companies and a boatload of promising young companies still in the works. Wetherell tweaks all of them to maximize coverage, penetration, ad targeting & relevance. I might be waay off in my projections but to underestimate any of these companies is a *BAD* idea as shorts have found out time and time again.

All of these companies walk a fine line. The market will spank them down hard if they falter badly against competition and innovations. Also, nearly all Internet stocks will get spanked should Internet growth slow. Should anything happen to the health of the CEOs behind the scenes, the whole game changes. But the long term...ahhhh...that's a different story, some may fail but if just a few of these companies succeed their shareholders will be well rewarded.

Sorry this is so long but it takes a lot of space for me to articulate my thoughts. I try to see everything with the macro view and how my investments fit in to my understanding of this. Still learning as I grow as an investor. I'll continue to send you guys posts from the bleeding edge (nanotech, biotech, AI, cheap space travel, VR, etc). Just keeping an eye on the future so I can invest in top dogs and first movers in different emerging technologies. If you've read some of my past "way out" posts you can see I spend a lot of time thinking about where all this is all headed. I read a wide variety of materials & sources to try to improve my feeble debth and grasp of knowledge and the changes technology will bring about. Kinda like da rat in that I keep my eyes wide open. (For all we know, he might have it right and there's invisible strings on even these titans of the Internet.) Opinions more than welcome.

btw, I was right about VERT, at least for the short term. Could've been had for as low as $35 around Feb. 20 now its at $96 or closing on a one month triple from its intraday low. Ah well, you don't have to own every rocket stock. I need to watch this company some more. Cheers!


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