Friday, March 10, 2000

Almost 100 %

As of today's update--just before the market close on March 10--MicroStrategy is closing in on a major milestone. Its stock price almost has reached the point where it would take a $50 million purchase from 100 % of the Fortune 500 companies (assuming zero production cost for MicroStrategy), to validate its market capitalization.
posted by Arnold Kling 3/10/00 1:17:10 PM

Widows and Orphans

Eric Janszen of itulip.com thinks that there are some signs to look for that would indicate an end to the Internet bubble. Basically, the idea is that the bubble will lose momentum when it runs out of new investors. He points to an article called the hidden crash, which is about Internet mania in the UK, as an indication that Internet mania has become international, which is one of the signs that it has gone about as far as it can go.

Jantzen also talks about the "widows and orphans" phase. He writes that

In this the last phase, the most risk-averse members of society finally give in to the siren song of risk-free sudden wealth and, against their better judgment, enter at the top of the market.

Recently, my mother-in-law asked me to look into their portfolio. As her husband's health has declined, she turned the portfolio over to a money manager, and she was not sure whether that had been a good idea. When I looked, there was good news and bad news. The good news was that the performance had been terrific. The bad news is that a huge share of the money is invested in go-go funds that are heavily into bubble stocks. My mother-in-law, whose idea of an exotic investment is to by 100 shares of AOL, owned stuff that I would not touch in a million years. I told the money manager that we needed to redeploy those assets. The odd part about it is that he is not a goofy guy--he understands risk and betas and all that. He just thinks that these funds are right for today's market, and that he'll know when to get out. Which is fine with me--as long as my in-laws' money is not involved.
posted by Arnold Kling 3/10/00 1:10:22 PM

Random Quote

Anybody who has sat beside a trader in mortgage-backed securities at a charity dinner will know from that person’s conversation that he or she is incapable of forming a larger view of society and its purposes; cannot fulfill the duties of American citizenship or enjoy its rights even in the ultra-representative form of modern politics; in short, can do little except trade mortgage-backed securities.

--James Buchan, in a book review in the New York Observer.
posted by Arnold Kling 3/10/00 7:36:18 AM

Thursday, March 09, 2000

MicroStrategy Soars Again

Once again, no news. MicroStrategy really is closing in on Freddie Mac in terms of market cap. At this rate, it will surpass my former employer next week. Freddie is at $26.3 billion and drifting down. . .
posted by Arnold Kling 3/9/00 1:19:38 PM

Wednesday, March 08, 2000

early update

I'm taking off early to enjoy the weather. The latest stock prices are as of 3:45 PM on March 8th.
posted by Arnold Kling 3/8/00 1:01:33 PM

Prozac Street?

Someone named Randolph Nesse, in an essay Is the Market on Prozac? tries to make the case that Wall Street is on drugs.
posted by Arnold Kling 3/8/00 6:38:27 AM

Tuesday, March 07, 2000

MicroStrategy vs. Freddie Mac

At March 7 closing prices, MicroStrategy had a market cap of $19.2 billion, on earnings of just under $25 million. Freddie Mac had a market cap of $26.2 billion on earnings of over $1.9 billion.
posted by Arnold Kling 3/7/00 1:48:18 PM

Monday, March 06, 2000

Market Close March 6

Yahoo and MicroStrategy had big gains. Remember I thought Yahoo was due for a lift? MicroStrategy now has a market cap of over $17.5 billion. Just for reference, Freddie Mac has a market cap of $27 billion. WebMethods plunged. It seems to move in 40 point increments in either direction. See comment below about the practice of issuing a small sliver of stock and keeping the rest off the market.
posted by Arnold Kling 3/6/00 1:38:28 PM

My Reform Proposal

In today's Washington Post, there is an article saying that Michael Saylor is not worth as much as he appears to be. The article says that because only a small fraction of MicroStrategy's stock is in the hands of the public, the price does not reflect reality. The article says that the restricted supply squeezes short-sellers and artificially raises the price of the stock.

If this is the case--and this is not the first article to make this argument--then when the bubble pops, the reform I will be advocating will be to force companies that go public to issue a large fraction of their stock at IPO or shortly thereafter. I cannot see how any public purpose is served when a company goes "public" and yet does not issue sufficient stock to enable the market to arrive at a correct price.

Even though Saylor still holds a huge quantity of MicroStrategy stock, the article says that he already has sold $360 million, which is more than I think his company will make in profits over its entire lifetime.
posted by Arnold Kling 3/6/00 8:01:49 AM

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