Prudent investors should beware of 'dot-coms'

There is a small amount of room in any strong investment portfolio for a dot-com stock

"Dots" to the left of me, "coms" to the right of me it seems that technology-oriented companies have taken over everything from Wall Street to Main Street. And if you picked up a copy of Time magazine's Person of the Year issue in December, you can easily see just what an impact the Internet and e-commerce have had on the American economy.

Jeffrey Bezos, the 35-year old chairman, chief executive officer, and founder of Amazon.com and an Internet billionaire was chosen as Time's last Person of the Year of the 20th century. And perhaps it is somehow fitting that the magazine's selection, in essence, personifies the greatest business revolution of a generation.

Mr. Bezos was certainly not chosen based on his ability to produce profits at Amazon.com, as the company has been hemorrhaging cash about $350 million in 1999 alone for nearly five years. His net worth can go up or down by more than $1 billion on any given day at the whim of the stock market.

Rather, Jeffrey Bezos was selected Person of the Year based on his vision and the way he has changed the face of retailing.

Bezos represented the first wave of e-tailers, which expect to sell $15 billion in consumer goods this upcoming year and another $109 billion in business-to-business sales.

Yet the dot-com revolution goes much deeper than just the way Americans shop. It has literally reinvented Wall Street, throwing out the window all the traditional tools for analyzing stock value, opting instead for investors who are willing to invest in little more than blue sky.

Amazon.com, for example, has never turned a profit, yet the company's stock remains a darling of Wall Street. In the past year, the stock has more than doubled in value setting such analytical tools as price-earnings ratios on their proverbial ear.

In no small way, it is refreshing to see the investing public willing to put their money at risk in entrepreneurial endeavors, placing faith in new ideas rather than hard assets that can be quantified.

But caution must be noted for the layman investor venturing into the flood of initial public offerings, or IPOs, emerging in the dot-com realm. Just because it's a new idea doesn't mean it's a good idea.

There is certainly room in any well-constructed investment portfolio for a dot-com stock that small percentage set aside for high-risk investments that have the potential for significant gains.

And the economy of the future certainly depends on those investors who will take an equity position in a company and stay in for the long term, to a time when the company reaches profitability.

At the Missouri Department of Economic Development, we work aggressively to encourage the start-up and continued development of technology companies, and we continue to identify, on an ongoing basis, sources of capital, particularly seed capital and venture capital, that are so necessary for these companies to flourish in Missouri.

Consumers and investors alike have spoken loud and clear that the future of international commerce lies within the realm of technology, and we believe we must encourage the development of these businesses in the Show Me State.

Of course, it may be a situation similar to the early years of the automobile industry. First, there were scores of auto manufacturers in the United States. Then there were dozens, a single dozen, then four and now, three.

Consolidation among Internet-based companies may never be this extreme, as the barriers to entry for these companies are slim to none.

But rest assured, the rash of dot-com IPOs will eventually stabilize, and we can expect to see the emergence of a finite number of Internet-based retailers emerge as definitive leaders.

We will continue to work with technology-oriented companies in an attempt to secure Missouri's place in the new economy, but we may have to kiss a lot of virtual toads before we find the next Amazon or eBay.

In the meantime, a lot of fortunes will be made and others will be lost. And the best advice for the prudent investor may very well be "beware of the dot-coms."

(Joseph L. Driskill is director of the Missouri Department of Economic Development.)