Column: It still makes sense to invest in stocks

Internet stocks have certainly been falling steadily, but they aren't about to totally collapse. Although investors like to think in terms of growth and earnings, stock prices are mostly a matter of fundamental beliefs, and only when those beliefs change do markets radically move. All hype aside, today's internet enthusiasm rests on a foundation of six core, but often unstated, beliefs, most of which still appear valid. Revisiting those basic assumptions should be a key part of any investor's reality check. Here's how things look now:

There is a widespread belief that e-business will generally prove superior to non-e-business. That is still a no-brainer. There will be huge portions of the economy where internet-based activity will be unquestionably faster, cheaper, more innovative or somehow just plain better than previous ways of doing business. Would you want to make the case otherwise?

There is an underlying assumption that internet-based opportunities will dwarf those of the PC era. That may seem like common sense. But if you add up the stock market capitalisations of all the supposedly overvalued companies, they still don't come close to the combined worth of just Microsoft and Intel, let alone the rest of the PC industry. That suggests that tremendous growth lies ahead.

There is a general sense that many of the leaders of the pre-internet world won't respond effectively to today's challenge. Certainly, both the early years of internet competition as well as the entire history of the IT industry suggest that it's much easier to start a brand-new company than successfully shift from one business paradigm to another. Who are you betting on - Amazon or Barnes and Noble?

There is a widespread belief that each internet market segment will be dominated by a single "gorilla" company, just like the software, microprocessor and networking equipment businesses. That is certainly possible but not inevitable. Happily, internet companies can't generate the software lock-in so typical of previous IT eras. But dominant leaders could still emerge in many categories because of the internet's vast economies of scale. I'd watch this area carefully.

There is a general sense that today's US leaders will, just like Microsoft, Intel, Oracle, et al, eventually go on to become global powerhouses. Clearly, this won't be the case with many telecommunications services. But even in content and commerce businesses, US companies won't necessarily walk over their in-country competition. The opportunity is there, but it's not that easy for an Amazon or Schwab to "get local".

There seems to be unwarranted confidence that the current internet market leaders will be able to maintain their positions. That belief is central to today's huge individual company valuations, but it flies in the face of most of the IT industry's history. Consider early PC leaders like Commodore, Visicorp and Epson, or even internet pioneers like Netscape, PsiNet and AltaVista.

Overall, the evidence seems to indicate that investing in a broad range of internet businesses should eventually pay off handsomely but that betting on individual companies is highly risky. internet mutual funds may look shaky right now, but they still seem like the logical place to be.

David Moschella is an author, independent consultant and weekly columnist for Computerworld. Contact him at

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