Forum Archive Index - December 1999

[Phil Eriksen <phil@acepay.co.nz>]

Ben Dutton wrote:
> 
> Sorry Hugh,
> 
> But I have to disagree with the points you raise below.  I think comparing
> the tech companies of today to Judge Corp and Equiticorp of the 1980s is
> slightly misleading.  An understanding of the major issues behind technology
> is vital.  For instance, how did you stumble across the ShareChat Forum?  By
> using a computer (manufactured maybe by Dell, Compaq or Apple); an operating
> system (Microsoft or Linux) and a browser (MSFT, Netscape <AOL>).

Ben,
I think the comparison is entirely valid.  Sure, Hugh is accessing this
forum by using a computer, but he may also have that computer situated
in a building built by an 80's high flyer.  New buildings and new
technologies help the community at large - in particular, they help the
people who choose to live in the buildings and use the technology. 
Investors, however, are helped by the eventual profits earnt by the sale
of buildings and computers.

> I use this as an example because many of the above companies are constantly
> referred to as "overvalued" because of their high share prices.  I
> personally believe that in some cases (for instance, Yahoo) this is true.
> However, even if there was a large crash (or correction) on the Nasdaq
> market (which would then lead on to similar corrections on world markets in
> tech stocks) these companies will still be producing and supplying the
> technologies of the future.  Nothing's going to change that.

Firstly, these companies are supplying the technologies of today - we
don't actually know who will be supplying the technologies of the
future, but if we believe it will be these companies, a premium is
justified.  Secondly, a large Nasdaq correction or crash would have a
serious impact on the IT/internet sector.  Some readers may be surprised
to learn that many US net companies have loaded up on bank debt and the
like.  Despite IPO proceeds, the cashflow of many of these companies is
so shocking, they are already borrowing large sums of money.  Thats real
money - coming from banks, not from deluded techies buying overpriced
shares - and when the market takes a tumble, these banks will want their
money, fast.

Again, that these companies will be supplying the technology of the
future is not important for the investor - eventually, to sustain the
share price, large profits must be recorded, and to achieve these,
decent margins (ie something above zero) will be needed.  The question
for investors is not "How many hits will amazon get each month?" but
"How many cents of each book sale will become real, non-doctored,
sitting-in-the-bank profits?".
> 
> Some NZ tech or e-commerce focused companies deserve the same recognition.
> The information Baycorp (BCH) holds on New Zealanders, for instance, may be
> more valuable than a piece of land in the middle of Auckland or
> Christchurch.  Advantage's (ADV) edge in the field of e-commerce will enable
> exponential growth as _every_ (that's right, every) business will be online
> in the future.

While I wouldn't buy Baycorp at current prices, I have certainly looked
long and hard at them.  They have a real business, have shown an
abiility to make money, and have used technology to secure the future of
that profit producing business.  Advantage is a different story.  While
most tech investors try to forget to the past, it may pay to recall
Advantage's history.  They were a "hot listing", the price went up fast,
stayed there a while, and then the insiders started to sell.  Eventually
the price languished in the 15c area, while everyone pondered how a
company could have such a high market share, but be losing buckets of
money.  

What is actually different this time around?  The company has changed
its focus, sure, but i see no evidence to justify the share price.  The
day Mr Watson and Co start to sell I would be very, very worried if i
held Advantage shares.  Sure, Advantage are building a powerful edge in
e-commerce in NZ, but being No 1 is not what counts to investors long
term - if being No 1 results in substandard profits for the company, and
bad returns for investors because the stock was bought too high, No 1
isn't worth being.

Cheers,
Phil

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