The Internet Bubble: Inside the Overvalued World of High-Tech Stocks--- And What You Need to Know to Avoid the Coming Shakeout

With all the talk about the Dow riding technology stocks to new highs (e.g., James K. Glassman's and Kevin A. Hassett's Dow 36,000, Forecasts, Aug. 30), count the Perkinses, founders of the technology business magazine Red Herring, among the naysayers. Not that they're bearish about the future of the Internet itself. They assume the technology will improve and will change the way ordinary people live, and that there will be an increase in transactions, revenues and profits. But they argue that, even with rapid growth, the current high prices of Internet and related technology stocks are unjustified. The technology and the business models are fine, but they believe that too many companies are being rushed to public securities markets before they are ready, and investors are all too willing to buy anything that is going up in price. The result, they argue, is a classic investment mania, in which higher prices generate more excitement and even higher prices--until the bubble bursts. Not that all Internet stocks are bad investments. The Perkinses figure that one in 20 will take off. But current stock prices only make sense if 20 out of 20 companies soar. The authors' prescription for investors is sobriety. As they lucidly explain the thinking of venture capitalists, investment bankers and analysts who shape the market for technology stocks, they demonstrate a thorough knowledge of the industry that makes their analysis extremely convincing. (Nov.)