Slashdot Mirror
Tech Stocks Rollercoaster - How Was Your Ride?
"Those graphs directly reflect my own experiences over the last 12 months. A year ago, I became CTO of a dot-com startup with seed funding and started a roller-coaster ride that peaked in February and March, when we were talking to VCs about how many millions they would invest. But April saw investor interest in dot-coms evaporate, and we shut down the company in July, returning the remaining seed funding to the original investors, rather than burn their money waiting for first-round investment from VCs who had recoiled from their former darlings - the dot-com entrepreneurs.
Despite failing to become a dot-com millionaire, I'm not hugely disappointed. Being part of the management team of a start-up is a truly unique experience and I would do it all over again for that reason alone. It sure beats being a wage slave. Fortunately, having been CTO of a dot-com has also had a positive effect on my career and, at the end of the roller-coaster ride, I can say that I have no regrets.
What sort of experiences did other Slashdot readers have over the past year? I know that there are probably one or two paper millionaires reading this right now, and I'm sure that their stories are very interesting, but what about the rest of you?"
Well, when the whole market tanked and NASDAQ was down 30+ percent, I was only down 1 percent from last year end, and that with disbursements too.
The main thing is not to panic, to buy for the long term, to not invest in anything you don't understand, and to be patient.
Remember, the AVERAGE growth is 8 to 10 percent. This can mean up years of 20 percent and down years of 10 percent.
While I ignore the age rule (percent of stocks is 100 minus age, rest is bonds minus 10 percent for cash), just like my grandparents did, and am thus always way more into stocks, I try to buy good long-term stocks for the most part. But I will sell if people get too excited (Transmeta, Red Hat) and buy back in when they get depressed (Red Hat, Microsoft).
The main factors in becoming millionaires for most people are:
1. being married to someone who is a saver;
2. saving/investing 10 percent or more of your income; and
3. living below your means.
I could live in a fancy neighborhood, buy a new car every year, but why? I'd rather live in a reasonable neighborhood where I don't have to keep up with the Gateses, buy a new car when my old one needs to be replaced (every 5 or 6 years, almost time), and save 20 percent of my income while giving tons to charity and political causes and having fun at parties.
Conspicuous consumption - the American nightmare. I ride the bus to work like most millionaires.
--- Will in Seattle - What are you doing to fight the War?
These folks were sucked in bu the idea of easy trading and the media's coverage of the "new economy". These inexperienced traders often buy stocks and sell them in the same day. They're in it for the short and fast ride. They also tend to be more reactionary to news and even rumors.
However, since they are making up an ever-increasing portion of traders, they are having a greater impact. Other traders cannot ignore them -- they must concede at least partially to them since they have a real impact.
I believe this influx of fledging traders can explain the more-wild-than-usual ride in this new market. Heck, I'd be one of these people too if I weren't too lazy to watch my stocks 24x7.
I've learned, somewhat painfully, the following lesson:
.18 (ouch), Blue Mountain Brewing (a local craft brewer that I enjoyed) bought at $1 currently trading at a split adjusted .04. I pick some good ones and even have had some good timing but on the measure, I don't outperform my funds. The dogs drag down the good ones.
Despite my personal knowledge of technology and the computer industry, I have not been able to pick stocks that outperform my mutual funds.
There, I said it. Over the past few years, even including the recent bloodbath in internet stocks, no matter how well I think I know the industry I seem to guess wrong. Please no flames on the examples but I'll list a few: Compuware, bought at 40 currently under 10. A small company called Egan systems, bought at 2 3/8 sold at
Rules of logic don't usually apply to the market. Professional money managers (big firms and mutual funds) have access to information that most people simply can't get even with the information explosion of the Internet. I've systematically moved my money back to stock mutual funds and sleep better at night.
Don't confuse good technology with a compelling business model that will make money.
Yeah, I'm a bitter person ;-)
I concur... The industry has grown and now the growth is just slowing... It couldn't have continued on forever, and now we are moving into a more mature phase of the industry where you need more than a .com at the end of your name to get VC money and customers...
Personally, things are fine for me, and seem that they will be for a while. My skills are in demand (both technical and business), the job market is quite robust in all the places we hire people, and the value of my company has increased by over 50% in the last 12 months.
But things are also better for my company (www.webmind.com) Why? We make innovative software which, while "Web enabled," really can work in any computing environment and is applicable to non-Internet as well as Internet information retrieval and understanding applications. By no longer having to "compete" with dogfoodonline.com or fedexyouapizza.com or whatever for VC attention, PR attention, and valuation - we're better off. We're actually creating something with intrinsic value, not just a "new e-tailing paradigm" or some such nonsense.
Software and hardware companies which are focused on solving business problems, and maintaining development (and research/innovation), will do just fine. People who hoped to get rich off of community sites or e-tailing have merely found out what brick-and-mortar players in these areas knew: advertising models (like TV and community sites) and retail models are difficult to make work, the margins are thin, competition is fierce, and customers will bolt to your competition at your first mistake.
There is an old adage in business people seemed to have forgotten: "you don't get rich in retailing" You don't, but Sam Walton does. Amazon.Com, despite doomsayers, will probably survive - but many other "web superstores" will probably fail. Focused retailers like Fatbrain.Com who provide excellent price and service will probably also survive. Otherwise, retailing will thus, most likely, remain in the hands of retail experts like Wal-Mart.
Things which actually belong on the Web: software sales, information services (some ad-driven sites will survive, community access low-budget sites will survive, and some subscription sites will survive - hey, just like TV and print media), etc. will continue as well. Shake-ups will occur. The wheat will be separated from the chaff, as they say.
We'll hopefully be left with a set of companies which have strong economic - and Internet community building - value, and be rid of all the completly embarassing and silly companies that were already making our industry look bad when they WERE doing well... Everyone knew THAT bubble had to burst, but it doesn't have to - and it won't - take the whole tech market down with it.
o/~ we are pissed, we are pissed, we have to resist... o/~ - ec8or
Economists have a simple, but profound, explanation for this. (I am referring to those who actually study economic theory, not people on Wall Street who declare themselves economists and make predictions just as unreliable as anyone else.)
If it were easy to predict which companies would make a lot of money, well informed people with a lot of money would have invested in these companies, so their stock price already reflects what can be predicted. Even if the smart people don't have lots of money, they can start their own investment fund and rich uninformed people will give them money to invest, with the same effect.
If investors didn't behave this way, any smart investor could make huge amounts of money by betting on the companies that have good prospects. There would be lots of "$500 bills left on the sidewalk", and we don't see that - people pick them up when they find them.
The result is that stock prices usually reflect what can be figured out by smart people with industry knowledge. Stock prices can move wildly, but that is because there is a lot of true uncertainty about how a company's performance will turn out (nobody knows).
Unless you have inside information that no one else has (and it is not illegal to trade on it), on average you won't do any better than the market average return (adjusted for the riskiness of the stock - risky stocks have to have higher returns to get people to buy them.) Bubbles like the run up in the value of tech stocks make it appear that anyone who sees a future in IT is an investing genius, but the bursting of the bubble shows the fallacy of this.
Most investors, including fund managers, who make lots of money on the stock market are lucky, not endowed with an ability to see things that no one else does. Look at the best performing mutual funds in the months and years after their exceptional performance. They usually do worse than the market. So buying a fund that has already done well is usually a bad idea.
The upshot of this for you and me: pick a broad market index fund that will give you average market returns, but with lower variability than a narrow stock or fund, and much lower expenses (the only certain part of your rate of return) since the fund manager is not buying and selling all the time. Broad index funds outperform 70% of mutual funds, mainly due to low expenses. Look at your stocks and see if they have performed better than the S&P 500 over the past ten years, and how much more variable (risky) they have been.
You rarely hear this advice because no one makes money giving it, and financial types have to admit they don't accomplish much. Financial advisors get no commissions from these barebone funds, so they don't recommend them. Check out Vanguard index funds because Vanguard is in effect a cooperative owned by the investors - it has no financial incentive to sell you things you don't need that make high fees for the fund owners. Vanguard was created by large pension funds to introduce the first index funds.
IAAAE (I am an academic economist.)
AnhZone
Patriotism is the conviction that your country is superior to all others because you were born there. (GBS)
Yes, it's fall, and time for the third annual "the bottom has fallen out of the tech stock market! the honeymoon is over! the sky is falling!" fest.
The Nasdaq's down, yes, but so is every other market in the world year-to-date except the TSE, and that's only because of the performance early in the year of a stock that has 30% of the TSE's market cap. The tech sector is down this fall, yes; and last fall. It'll recover. Ignore market psychology and value ratios and technical indicators for the moment, and think: every day slashdot posts about new and exciting technology. Progress and the level of technical achievement in our culture advances continually - the only thing that can hold the tech market back is a fundamental restructuring of society - but if that happens you'll have worse things to worry about than what your dotcom stocks are doing. It's a geeky world out there and it'll only get geekier - so buy a mixed basket of techs while they're cheap and hold on to 'em for 20 years and retire.
How's my ride been? Well, I'm 30% up from where I started, and when the market recovers, I'll be doing even better. "Welcome to the wonderful world of high technology."
That said, I bailed like all getout back in the 1st quarter. Total portfolio up 17% ytd, not bad when the market as a hole (sic) is down.
Since stocks are tough to predict is might not be completely accurate to say that this is the end of the tech boom. Another could be around the corner. This is probably just the market shedding its excess baggage, competition is grew because there were more companies getting in so the weaker ones had to fall off. You could also say that the early predictions of the growth of the online market itself were overly ambitious, something that didn;t exactly help keep the enthusiasm high.
Luckily there are companies and people out there who aren't in this for the money. Good thingd will continue to happen on the internet, they just might not be profitable things.
Icebox
No different than dropping coins at Vegas.
For all the winners there are losers. Remember you don't win unless there is some one out the BUYing the stock from you. Or maybe two or three or four (depends on how high).
For those older hand with stock options - cashing out - making look like a great thing for those just joining - but is there a future?
Is the stock market the next Social Security scare?
Remember to retire with those 401k - the stock needs to be sold to some one. Who will be buying when the first 1/4 of the bady boom goes by, the second 1/4, the third and fourth?
I was reading that if Microsoft had to report the outstanding liability of stock options on thier balance sheet (better: deffered companision) Since MS is to pay the difference between the option and the going price. they would be setting at a net LOST for last year.
Isn't math fun?
Being part of the management team of a start-up is a truly unique experience and I would do it all over again for that reason alone.
Interesting observation. I went to work for a heavily-funded startup about a year ago. Management there was composed of former middle managers at some established companies. And they were very competent people, at least in a larger environment. Nice people, too. But over the course of the the last year, it became apparent that, while they may have been very competent working in an established company, none of them had ever run a small business. They thus lacked the perspective one gets from having all the weight on one's own shoulders; if one or more of them had ever run a neighborhood dry cleaner, some things would have been done differently. As a middle manager, one learns to cover one's tail, to do the proper analysis, make the safe decisions, and you're somewhat insulated from the effects. The process is more important than the results, as far as career advancement is concerned. In a startup, the results are all that matters.
That said, the compay's business plan was doomed, simply because investors had wildy overestimated the market. So that company wouldn't have been profitable even it had been run by Ellison and Gates.
Likewise, I've talked to many other former employees, and few have expressed any regrets. The only ones who were really hurt were those who left good jobs at established companies seeking riches. But those of us who went in with realistic expectations (I always expected to be laid off, I just figured it would take a few months longer), enjoyed the experience, made some great friends, and the fact that I was able to come away with no bitterness really helped when I went job hunting.
> I think that we may be able to conclude that the Internet/Tech Stocks bubble has finally deflated
I think we are not able to conclude anything. The Internet/Tech Stock 'bubble' may still be present, and can put the world economy in a recession cycle, when the averge john doe will understand that the money he borrowed to day-trade have disapeared. Or it may rise again, when all the stupid (pets.com) or badly managed (boo.com) startups will all have failed and the few remaining will start trashing brick-and-mortar economy.
You cannot predict anything by looking at the stock market index. No matter how hard you try.
Cheers,
--fred
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no problem for me.
Being one third owner of a tiny internet company (5 employees total), business has been good for the last year and we've paid ourselves. We're thinking of investing in a new kettle and maybe another monitor and a keyboard this month. The strength of our company position in the boom economy means we are tentatively expanding to buying two types of coffee and maybe, just maybe, three types of chocolate biscuits. Might print some business cards to diversify our holdings. Been following NASDAQ closely. ;-)
The way in which the overvaluation of tech stocks affected me most was that people I meet who aren't familiar with computers keep going, "So. You're in computers. Are you rich?" And I would say, "No. I work for a university." And they'd say, "Oh." And that was pretty much the extent of their interest.
I, too was working in a classic dot.com in May, just as the bubble burst. No problem, I thought, this company actually has a workable idea that could be profitable within two years, and they aren't just another portal or shopping site.
What I hadn't realized was that everyone except the CTO were part of the idiots that think the internet is a magic money machine where the rules of good business don't apply. You had an exec from a failed department store who was nominally a CFO acting as a COO, a COO acting as a CEO, a sales staff who would simply tell the customer anything they wanted to hear (and charge them a tenth of the cost, literally), whether or not ANY company could do it, let alone ours, and no one other than the CTO had ever been in a tech company, even peripherally.
As many people here know, a good tech department does not a well-run company make. Soon the tech staff became the scapegoat ("Well, if they would just work harder," said the marketroid, as she left at 5pm on Friday not to be seen till 9:30 Monday), people were fired right and left to make up for the investor shortfall, and the workload didn't decrease.
Somehow I'd remained quiet enough that I was deemed "safe" because I wasn't in my early 20's and therefore sympathetic to management (wrong). I got a nice promotion and pay raise which enabled me to find a company that was self-financed (that's a good thing) and more along with what I wanted to do to advance my career.
The silly politics at the dot.com had started long before the bubble burst, and this simply forced the issue. So it got me out of a bad situation in record time while putting me in a higher tax bracket and a nice spot on the resume. Oh, and now I'm the one who goes home at 5 (well, 6 or 7, but not 1 or 2). The new company has no marketroids, and everyone comes from both a tech and a substantive background in the field we're in.
Yes, I benefitted from the reality check. The bubble is dead, long live the tech sector!