Guest column: Internet stocks: don't get greedy

You have questions, I have answers. Here are two: Sell half of your Internet stock now. And R(A,S)=(A+S)!/(A!*S!).

Autonomy chief executive officer Mike Lynch and I just had dinner again. Lynch is the brilliant Cambridge mathematician who taught me the Monty Hall Paradox.

Lynch now has another paradox, which he shares with many Internet companies. He took Autonomy public in July. On the one hand, thanks to 80 per cent growth in recent months, Lynch enjoys a market capitalisation well into the triple-digit millions.

On the other hand, Autonomy's market cap is much larger than its annual revenues, which are barely into the double-digit millions. Just to keep his stock steady, Lynch must keep delivering phenomenal growth and eventually, profits.

So, it's safe to say, Autonomy's stock is going up, or down, or will stay the same (http://www.autonomy.com).

I keep telling young Internet companies: don't go public. But if presidents can't resist interns, how can we meanies expect young companies to resist the public stock market?

True, going public gives young companies stock with which to buy one another, so they can achieve critical mass or offer one-stop shopping. And they get what's called liquidity, with which shareholders convert stock into beer.

But then, young Internet company CEOs wake up to find that attracting employees is difficult. High-priced stock options are not worth much.

And if the stock falls, shareholders and employees, who were enthusiastic on the way up, go berserk on the way down.

Worse, going public turns programmers into Rule 144 securities experts who all of a sudden can't program.

So why are Internet stock prices so high?

The economy is strong, thanks entirely to Bill Clinton, and the Internet has a limitless upside, but the main reason Internet stock prices are up is that many dowager corporations are looking for Web gigolos to take them to the Internet Riviera.

Say you're an elderly telco, or even Microsoft. Without good growth ideas, your monopoly profits pile up. What better way to feel young again than to be seen around town splurging on young Internet companies?

And while attending Wall Street parties, where dowagers hang out, gold-digging Internet companies are encouraged to flirt with one another. Surrounded by lawyers on the boards of their newly public companies, young CEOs are rudely informed by merger and acquisition pimps that it's their fiduciary responsibility to merge and acquire.

But trees don't grow to the sky. And so I urge, if you are holding any highly appreciated Internet stocks, sell half.

If prices fall, feel good about shares you sold. If prices rise, feel good about shares you kept. In the meantime, have fun by walking a different route to work every day.

More routes to work

Back to the puzzle some of us have been escaping with these past three weeks. If work is A avenues west and S streets north of home, how many different shortest routes are there? The shortest routes, of which there are R(A,S), are all of length A+S blocks.

Last week, I claimed recursively that R(A,S)=R(A-1,S)+R(A,S-1), with R(A,0)= R(0,S)=1 terminating the recursion.

This week, after counting permutations and eliminating duplicates, I claim that R(A,S)=(A+S)!/(A!*S!), where N! is N factorial, or N*(N-1)*(N-2)*...*2*1.

In Excel's Visual Basic, my recursive and factorial functions agree.

I've noted that along the six blocks between my townhouse and IDG headquarters in Boston, there are interesting alleys, and that the opposite sides of avenues and streets are quite different. So my routes to work increase from R(2,4) to R(6,13), all of length six blocks. This is 27,132 -- 50 years of walking variety.

Internet pundit Bob Metcalfe invented Ethernet in 1973 and founded 3Com in 1979. Send e-mail to metcalfe@idg.net or visit www.idg.net/metcalfe.

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