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Is Dot Com Dead?By William CatePublished May 1999[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]A public company's share price relies on perception, notfundamentals. Investors buy the sizzle and not the steak. It's the reasonstock promotion works. Perception can be manipulated.Investors are lemmings. In the 16th Century, they invested intulips. In the 1970's, it was gold mines. Until recently, it's been theInternet. The cliff the lemmings rush over is fundamentals. Most investorsdon't believe the axiom that a business that isn't making money can'tsurvive.Tulip Mania, Mining Mania or Dot Com Mania follows the same road to investor loss. There's an event that catches the media's interest. In thecase of Mining Mania, it was the collapse of the Bretton Woods Agreement in1972. France forced the United States to float the gold price against thedollar. This created a platoon of "gold bug" gurus. The profit wasn't intelling the lemmings that the gold price was going up. The gurus made theirmoney telling investors to buy gold mining stocks. The gurus got theirstock free for promoting the mining company and sold into the buying theycreated. Mining stock centers like Vancouver, Denver and Salt Lake Cityboomed.It doesn't benefit the U. S. economy, nor any Western Government,to allow gold to appear safer than the U. S. Dollar. After 1980, WesternGovernments moved to undermine gold [http://www.metropolecafe.com] as an alternative to paper currencies. The declining gold price ended MiningMania.The gold bug gurus mining argument was illogical. They argued thatinvestors should not trust the U. S. Dollar because it was a worthlesspaper (fiat) currency. However, investors should trust worthless paperstock certificates because they represented the potential to produce gold.Gold mining sank on three realities. The gold price never movedhigh enough to offset the post World War II inflation. The EnvironmentalMovement imposed massive additional costs on mining, especially in theUnited States. Most profitable gold deposits had been mined before 1972.Without the prospect of profit, the potential of gold in the ground wasworthless. Mining Mania ended with the loss of billions of investor dollars.The creation of the Internet is one of the major technologicalevents of the 20th Century. It's empowered the individual and contributedto the fall of the Soviet Union. In the next Century, computer literacywill determine social class and widen the gulf between between wealthy anddeveloping countries. Keep in mind that expanding world population meansincreased demand for finite resources. The Net doesn't produce food,shelter or clothing. But, media focus on the Net is justified.The Net isn't a means of production. It's a means of distributionof goods and services. You can sell books on the Net, without renting abookstore. I can sell my financial consulting services with thisnewsletter, without paying for printing and postage. In theory, thesesavings should translate into greater profits.Large businesses on the Net are designed to be unprofitable. If theprincipals in a startup Net business must earn US$100,000 to US$400,000 ayear, that money must come from investors. Everyone from the CEO to thejanitor must have large blocs of stock in a Net company. When that companygoes public, the employee stock usually destroys the share price. Who takesthe loss? Investors.The investors expect a greater fool to absorb the insider sellingand take the share price higher. In a few instances this happens. In mostcases, the IPO buyers have proven to be the greater fool. The mistake hasbeen repeated so often that many investors are wary of Dot Com stocks.The problem isn't the glut of Dot Com IPOs entering the Market. DotCom has become terminal because of permanent non-profitability and insiderselling. The evolution of the Net won't rescue these failing Dot Comcompanies.Few Dot Com technology companies can keep on the forefront oftechnology for very long. They will have a brief period of excellentrevenues and then they will fade. Dot Com distributors, particularly nichedistributors, can survive and prosper. The secret is to make more moneythan you spend.Here are my five rules for making more money than you spend with aDot Com Distribution Company.1. Keep your overhead down. This means modest salaries. It meansfew perks. The company must have a strong controller.2. If you must give away blocs of stock, require that they bepooled and vaulted along with your insider stock.3. Incorporate in a tax haven. Operate from a country that doesn'ttax foreign-source income. If you are a Canadian citizen, you operate taxfree. If you are an American and keep your salary below US$70,000, youoperate tax free.4. Contract reliable overnight shipping services in the States,Canada and Western Europe. Keep regional inventories adequate to meetexpected demand.5. Target your buyers on the Net. In the San Francisco Bay Area, Iassume all the Dot Com companies advertising on the radio are doing it tocreate demand for their IPOs. It can't be to sell their product.I think Dot Com IPOs are dying. Dot Com technology companies willfind it harder to attract IPO investors. Well-run Dot Com distributioncompanies will survive and prosper. However, Net investment interest isgoing into a period of major decline. The Lemmings are looking for a newcliff.To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Article Tags: Share Price, Mining Mania, Gold Price