The Law of Gravity Revisited
By Jeff Gainer
(Author's note: This essay originally appeared in the 30 May 2000 issue of the Cutter IT Journal E-Mail Advisor.)
Just a few short months ago, it was quite possible to bring a nifty dot-com idea before the marketplace and hoards of investors were all too willing to fling money at an untested idea that, incidentally, had never made any money, nor ever had any prospect of doing so. The lack of what was coyly referred to as a "business model" was not necessarily an impediment to raising a market capitalization greater than the GNP of Canada. Watching technology stocks soar to inexplicable levels is to me, a former stockbroker, more than a little puzzling. But by April of this year, the trend had apparently reversed, with the US NASDAQ lost nearly forty percent of its value.
The subtitle of a recent research report on the technology industry from Salomon Smith Barney summed up the situation nicely: "The Internet Economy Learns that the Laws of Gravity Still Apply." The recent rout of technology stocks, however, was not a crash, but merely a correction. It was a difficult, painful lesson for those with most of their net worth tied up in technology stocks. Yet many of those affected have never experienced a recession, let alone a bear market.
The rules of the Old Economy and the New Economy are not really that different after all. The idea that a company must make money to sustain its stock price still applies. Has technology transcended economics? Recall that eighty-odd years ago, the hot new technology was something called the "motorcar." In this heady time, there were over a hundred and fifty motorcar manufacturers in the US and Canada. Today, only three remain.
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This article originally appeared in the Cutter IT E-Mail Advisor, a supplement to Cutter IT Journal. www.cutter.com/itjournal
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