Forum Archive Index - April 2000

[timothy carling <tmtcarling@yahoo.com>]

Before anyone start spending money today to pick up
tech "bargains", the article below from this morning's
Melbourne Age provides a sobering reminder.
--------------------------------------------------

`e-bargain' warning
by ELI GREENBLAT 
Friday 14 April 2000 

A leading fund manager has warned investors not to
start bargain hunting in the sharemarket's battered
and bruised dot-com sector, fearing many people could
face financial ruin if they doubled up and bought more
shares in near-bankrupt companies.

Greg Matthews, head of equities at Macquarie
Investment Management,said it would be a grave
miscalculation for investors to believe that falls of
up to 50per cent in some tech stocks had suddenly made
them a value buy.

"Value is a meaningless concept for most of these
stocks," he said.
                
"Because even the ones that have got value on the way
down are likely to go down through that level as
investors receive margin calls, confidence evaporates
and trading becomes illiquid."

He said it was typical for companies in the midst of a
major market downturn to seek extra capital, inviting
existing shareholders to participate in rights issues.

Mr Matthews said this had happened in other busts,
such as the Poseidon boom in the 1970s.

"You will see people recommending these things
(Internet stocks) all the way down and you'll probably
see rights issues and capital raisings to bail them
out.

"These tech stocks have to do it (capital raisings)
because they are burning cash so quickly, so you
really stand a chance of losing more money than just
your initial investment if you keep on topping it up."

Mr Matthews said recent rumblings on Wall Street and
huge falls by many Internet stocks reflected a growing
feeling among analysts that some of the e-commerce
business plans were fatally flawed.

"Forget about value, because all these types of
Internet companies have gone way above what you
consider fair value.

"My basic premise has always been that you can't run a
business that is losing money in a very competitive
marketplace which has got, quite frankly, no chance of
ever making money.

"The pattern of rises in these stocks is a
market-psychology type of thing, it's a greed thing."

He added that low rates of inflation and robust
economic growth enjoyed by most of the world's leading
economies had helped to sustain and expand the dot-com
bubble.

                                                      
               





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