Baseball and stocks are on my mind today as the league championships get under way. What do the
San Francisco Giants
have in common with technology stocks? They have all gotten their butts kicked by New York. The Giants by the
, the A's by the
and tech by Wall Street.
There is a whiff of fear in the market for technology companies. Stocks continue to fall hard, as they have since August. The
Nasdaq Composite, on Tuesday knocked down 115.03, or 3.4%, to 3240.53, is sliding almost inexorably toward its May 23 closing low of 3164.55. No one knows where the bottom is: 3100? 3000? 2900? 2800? (For instance,
and I have a bet on -- he wins a bottle of bourbon if the Comp closes the year without breaking 3000. I win if the Comp breaks 3000.)
At anxious times like this, the mood of money sets stock prices. Why? Traders are scared they might lose more money. So they care less about the promise of tomorrow and more about today's cash burn, less about
estimated 2005 earnings and more about recent misses at
You might say, "That isn't fair. That isn't right. That ignores earnings and revenue growth." Baloney. Were you complaining when greedy investors bulled these companies to valuations never before seen in the history of mankind? Not likely. You were perfectly willing to believe it made sense for a stock to sell at 250 times earnings and double in six months. So let's not kid ourselves.
Now, the market has turned. The priceline you bought at $50, which went to $100 and now sits under $7 a share, may never come back. Did you ever understand why it was worth $50? Why didn't you sell at $100 and take your profit? Why didn't you sell at $25 and admit that you made a mistake?
Did you really know how to value tech stocks when you loaded up? Perhaps you valued them as some multiple of revenue. Did you assure yourself that that revenue would lead to profits? Did you bother to figure out how much capital would be needed to get to profitability? Did you then estimate some return on invested capital for the company? I doubt it.
More likely, you bought your stocks because you figured someone else would take them off your hands later at twice the price. That is the "greater fool" theory of investing. There are a lot of fools in the stock market. They did not know what they were doing when they bought these tech stocks, and now they are lost. They don't want to admit they made a mistake and take their losses.
As long as tech investors refuse to capitulate and take their losses, the market for tech stocks will go lower. Why? The cynical old pros back in New York are now in charge, not the New Age Silicon Valley boys and their compadres at go-go mutual fund shops like
. The skeptics have supplanted the optimists for the moment. They sense the danger in the market and are waiting to buy at lower prices. This, too, shall pass. But not yet.