I told you about my few shares of ICGE. They came out this summer at $12 and ran up to $169.50, where I sold half. Fourteen times your money in four months, even these days, is acceptable.
That was December 7.
By the 9th, it had inched up another 40% — a respectable two-day gain — so I sold the rest at $238.25 and wrote a few sentences about how nuts all this is.
By last week, it had climbed a further 60%, to $424. (It had also split 2-for-1 — for each dime we had two nickels — which meant the stock was now quoted at 212.)
At this point, ICGE was valued by the market at more than General Motors.
I took a deep, deep breath and shorted a tiny bit — DO NOT TRY THIS AT HOME!
I don’t know anything (obviously). If I did, I wouldn’t have sold at $169.50. I would have waited a couple of weeks and sold at $424. But it seems to me that while much of the excitement stems from the dazzle of the Internet, which is very real (ICGE owns stakes in 35 Internet companies), some of the extraordinary gains recently in stocks like this one and dozens of others may have come in part from:
- Short-covering — short-sellers who just couldn’t stand the pain any longer, or who, because of margin requirements, had no choice.
- Tax-considerations — short-sellers buying to take a year-end tax loss . . . combined with shareholders itching to take profits, but not selling — determined to wait a few weeks until January 3, to push the tax bill out 12 months. The combination of desperate buyers and stubborn non-sellers can drive a price up.
Or maybe these factors had nothing to do with ICGE’s jump from $169 to $414. For all I know, ICGE may double next year. Or next week.
If it does, I’ll be fine. I shorted just a tiny bit.
Even if it goes up tenfold, I’ll be able to eat. But a tenfold gain would give it a higher market-cap than IBM and Exxon/Mobil combined. Can this year-old company be that astonishing? I don’t mean to pooh-pooh ICGE’s ownership stakes in 35 e-commerce companies. But I have ownership stakes in half a dozen myself — should my market cap be $5 billion?
I won’t more than mention that the 35 e-commerce companies ICGE owns stakes in mostly lose money. Investors are way too far-sighted to care about that. The assumption is that one day, somehow, the profits will not just flow, they will gush.
They will cascade.
My one worry about this is that e-commerce makes price-comparisons so easy. That’s great for shoppers, but rotten for shopkeepers. Even virtual ones.
You don’t have to drive around comparing prices. You don’t even have to call around. Indeed, you don’t even click around. Automated shopping robots will find the best prices for you.
Suddenly, it’s a snap to save $2, which you would never have bothered to do if it meant leaving one store and walking to another, unsure whether the item would be cheaper (or even in stock). And getting the best price no longer requires haggling. Or disappointing an eager sales clerk with whom you’ve established eye contact.
Before, there were lots of reasons to pay more for a microwave. Now there are none.
This is fine for the microwave makers; not so fine, perhaps, for the people who sell them.
And won’t microwave ovens soon be free anyway?
You’ll click to have one delivered, in return for agreeing to see banner messages in the digital display (“Food ready. Try a little A-1 Sauce!”) and a permanent banner above the door (“Things go better with Coke!”).
People will pay you to use one of their microwaves. Pay you to make their portal your portal. Not just give you free PC’s — a highly profitable business model, if you ask me — but pay you to use their PC.
(I had planned to give you a free pair of sneakers for reading this column today, compliments of WebMD — click here. My own size 9-1/2’s should be arriving any day now. But supplies have apparently run out. Sorry.)
You think Starbucks is profitable now? With those $3.89 decaf eggnog lattes? (Quite good, by the way.) That’s no way to make real money. The way to make real money is to give the coffee away, as a way to draw even more traffic, and put banner ads on the cups. Banner ads for FREE PCs and FREE PORTALS and FREE SNEAKERS, the providers of which can all afford to spend a fortune advertising on Starbucks cups because there’s such huge profit, ultimately, in giving things away free or selling them for just pennies above cost.
Take that huge profit and multiply it by 50 (in the case of General Electric, up 60% this year) or 77 (in the case of Microsoft, up 70%) or 1600 (in the case of Yahoo, up 400%), and you have today’s stock price.
(At least Microsoft has a monopoly, and GE is one of only two or three brands you can names that sells light bulbs. But Yahoo at 1600 times earnings? What happens when Pokemon opens a portal?)
One of my friends is worried. He thinks this is a bubble, and that the higher it goes, the more horrific the unwinding will be. After all, unwindings can feed on themselves. Falling stock prices can make everyone feel poor. That hurts business. That hurts employment. That hurts business more. That hurts stock prices more . . . and around and around it goes.
Hopefully not. But it is absolutely possible, so don’t have all your money in high-flying stocks. And don’t be in the market on margin.
Tomorrow: Free Food
Quote of the Day
Every debt is ultimately paid, if not by the debtor, then eventually by the creditor.~Jim Grant
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