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November 25, 1998

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Subject: Re: AMZN continues to AMAZE...
Author: DaKid

I have come to a conclusion after today regarding Amazon, Yahoo, and the other Net stocks.

Listen to the analysts and brokers who cover Internet stocks...

Do you hear that??

That's right... silence. EVEN the fund managers aren't recommending Internet stocks at these levels. I'm not even hearing the most bullish of the bulls telling their clients to buy these stocks at this point. In the last week I have not seen ONE analyst recommending the Internet stocks where they're currently trading. In fact, without fail, the most common response is a shaking of the head and a sheepish look. The bearish types are talking about tulips, the bullish types are talking about questionable valuation...

So here's the big question - who is buying these stocks?? Daytraders? Nah. Not enough to keep pushing the prices up to where they are now. Sure, they trade during the day with them, but most of them close out positions at the end of the day. And somewhere there are still buyers to keep the price from collapsing.

  "In the last week I have not seen ONE analyst recommending the Internet stocks where they're currently trading. In fact, without fail, the most common response is a shaking of the head and a sheepish look."

If it's not the institutional investors and it's not the daytraders, who's left? I'll give you a clue; it would have to be someone who a) doesn't really understand what they're buying and at what valuations b) doesn't care about the volatility because they're in for the "long run" and c) doesn't really understand the structure and dynamics of the Internet and thinks it's all one big money machine where profits are going to double year after year after year.

The answer is - my parents. To put that in perspective, I just turned 30. I've grown up using the Internet. I know how it works and I've watched companies try out all kinds of business models from day one. The Internet started as a non-commercial forum for academics to trade ideas, papers, and calculations. Then when things started to rumble, companies like Wired & ESPN tried to put their content on the web for a subscription fee. That didn't work. Then they tried luring people in with freebies and promotions. That kind of worked, but there was no loyalty and the revenue wasn't there. Next they tried on-line advertising. That seemed to work ok, but there were no reliable metering services to really tell how accurate the hit counts and page views were. It was kind of like making up your own television ratings, where the cumulative total of viewers exceeded the national population on a daily basis. 2+2 equalled 2 billion.

Finally, they have all now decided that the next big thing is e-commerce. Sell stuff on the net. Doesn't matter what it is - hell let's sell disco records. Just add the name .com to our business and put up an SQL server linked to our product database. If those people from Italy could do it in that IBM commercial how hard can it be? And hire some PR people to issue lots of press releases so the analysts will cover our stock.

  "Mom and pop think that AOL is the only way to get on the Internet. They think Yahoo is the only good search engine. They think Amazon.com is the best place to buy books. And they think that EBAY is the only place to sell beanie babies."

And thus, we arrive where we are today. Mom and pop think that AOL is the only way to get on the Internet. They think Yahoo is the only good search engine. They think Amazon.com is the best place to buy books. And they think that EBAY is the only place to sell beanie babies. Forget the fact that the Internet is a global communications system. Mom and Pop think it's just like the mall. That's what they know. They shop at the big stores because you can trust them and they have the best sales. And right now mom and pop are buying the big Internet stocks regardless of their values.

Who's right?? Well, I guess that's a matter of perspective. If you're a stockholder in these companies then mom & pop are doing a great job for you right now. It's a horse race, and they've got their money on the favorites. What they don't realize is that the favorite at the race track ALWAYS turns out to be a losing proposition in the long run.

In the meantime, mom, do you think you could spare some lunch money?

-Kid


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