Stock Market Goes Bananas; Outlets Look at Online Trading

Jan 07 1999

Stock-buying frenzy reached orgasmic heights yesterday, as the Dow and Nasdaq hit record highs. Amazon.com led Net stocks into thin air, touching a pre-split $400 a share. That was the nose-bleed plateau set by CIBC Oppenheimer analyst Henry Blodget as a one-year target, setting off howls of protest and a surge in stock prices, and it's only been one month. Targets, schmargets. EBay reached 283, Yahoo set a record high at 291, and Lycos reached 66 on a "buy" from CS First Boston. With barely a shred of news - ISP MindSpring bought up Netcom users for $245 million, and the Wall Street Journal focused on the suddenly red hot chip market - most outlets and analysts were left scratching their heads.

The timing was right for a couple looks at individual investors, who have been blamed for everything but the price of tea in China. The Washington Post's Elizabeth Corcoran looked at the growing power of plain folks gaining access to IPOs through online trading houses. She said you can "add investment banking to the list of businesses that are being 'amazoned,' or reshaped by the Internet," as Wit Capital, E-Trade and Charles Schwab let their members buy select IPOs at opening prices. No one thinks institutional investors will go away, but Wit alone has offered members tiny slices of 42 offerings, and W.R. Hambrecht & Co. is looking at bringing IPOs directly to investors online without any investment banking fees.

While individuals have had access to successful IPOs like EarthWeb, Ticketmaster Online-CitySearch and uBid , said Corcoran, eventually they could get in over their heads. She warned, "It's unclear how investors and regulators would react in a market slump, when middle-class speculators could suffer serious losses from IPOs. There's also the risk that successful early deals involving strong companies could be followed by much riskier offerings, which small investors might not recognize as bad gambles."

The San Jose Mercury News' Mark Schwanhausser looked at the e-trading phenomenon and summed up its allure nicely: "It's a kick to brag about your profits from the latest Internet IPO." He said the Online Investor site recently released data showing online trading was becoming cheaper, too, as PC prices plummet. The Merc scribe said the average start-up cost of becoming an online trader was down 12.4 percent from a year ago, even though commissions had basically leveled off. Schwanhausser said falling trading costs shouldn't act as an incentive to make poor trading decisions, because you'll still lose money in the markets. Just not yesterday.

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MSNBC

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Washington Post

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Mercury Center