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Just Another Manic Market

Editor's Note: This column marks the debut of The Signal and The Noise , an attempt to direct investors to meaningful information in tech stocks amid all forms of noise -- whether it be public relations ploys, shaky accounting, bad management or silly conventional wisdom.

There was a quiet but telling moment earlier this month when two of the investment banks that had led the underwriting of's (BIDU) explosive IPO initiated coverage on the Chinese search company with underperform ratings.

That's right. This is a stock that has lost half its value since going public not even two months ago. Even at such a hefty discount, Goldman Sachs and Piper Jaffray were warning investors to stay clear.

Neither worried about Baidu's future. It was a question of valuation: Both felt the stock price -- currently around $77 -- would begin to approach reality around $45. Goldman analyst Anthony Noto pegged Baidu's implied value at or below the $27 offering price.

And that sums up the market for technology stocks in 2005, or rather the market's split personality. You have some people -- to their credit, Goldman's and Piper's analysts among them -- who are trying to adhere to the hard lessons of the recent crash in the Nasdaq, which is still 59% down from its March 2000 peak.

Then there's the camp of investors who, if they remember the tech crash, do little more than pay lip service to its lessons. A few short years after lifetime fortunes were wiped away by speculative trading, it's mind-boggling to think that someone wouldn't think twice before paying $153.98 after Baidu's IPO.

Tech mania is on its way back. Sure, the speculation is contained in a few isolated pockets, and there remain bargains in the tech sector for investors willing to do their homework. And tech companies keep surprising with new innovations, which may give careful investors genuine opportunities.

But it also gives careless investors false hope that the spectacular returns promised in the 1990s may finally be here.

Much of the press is still in the 2003 mentality that investors are once-bitten, twice-shy about tech stocks, as they were in stories commemorating the five-year peak of the Nasdaq last March. The San Jose Mercury News, for example, declared, "investors remain deeply skeptical of tech stocks" and quoted a strategist that it would take another 10 years for tech stocks to reach the old highs.

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