We're about to turn the page from December to January, an event once again marked only by excessive consumption of champagne and the wearing of silly conical hats (someone please find out who makes those things and sell the daylights out of them). Only a scant three years ago, however, we were involved in the most overwrought calendar-flip of all time, Y2K. In retrospect, the acceleration of technology spending going into this pseudoevent was one of the most important contributors both to the tech bubble and its subsequent bursting, but all we could focus on then was whether elevators would, for reasons still not clear to me, get stuck. Nothing happened then, and while I didn't think anything would, Dec. 31, 1999, fell on a Friday, and I had a column for TheStreet.com to write for the following week. Better get it done before the universe inverts on itself and we all plunge into a space-time warp, I thought. Besides, the market closed early that day, and I had nothing better to do. The topic I sat down to write about was whether we had lost our collective minds regarding the Internet. While my initial thesis was that the market was in need of a cold shower, I switched arguments as I started to write. The resulting column likened the Internet sector's valuations to a long-term call option on an industry, and it concluded that while any one individual stock, Yahoo! ( YHOO), for example, was overvalued hopelessly, betting against the entire sector was dangerous. The logic of buying the sector had been demonstrated in software. In 1986, spreadsheets were dominated by Lotus Development, word processing by Word Perfect, databases by Ashton-Tate, networking by Novell ( NOVL). Microsoft ( MSFT) dominated only the PC-DOS operating system. But if you bought Microsoft then and held it, you could have prospered considerably throughout the 1990s as your various other software holdings dropped off the radar screen. You didn't know which stock would win the software game, but the bet of the software industry growing was pretty safe.
After the Train Wreck
So far, that logic hasn't held. Even though the Internet is a much bigger part of my life (and I suspect yours) today than at the height of the farce, Internet stocks have benefited only the most aggressive shorts since then.