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Bubble Trouble


The reassurances fell on ears made deaf by the crash of so many other dot-coms and infrastructure plays and B2B hotties that sounded so good just a few weeks ago. While the mighty tech stalwarts came back, the once-billion-dollar babies can't grow back into their old market caps.

This time, though, there isn't enough capital left to bring those stocks all the way back up, even though some had hefty bounces from the bottom. They are still so far off the highs as to make the vault back to where they once were seem unimaginable. And that could mean that the plans of many soon-to-be-public and some already-public companies to raise more equity capital will have to be shelved if not junked altogether.

After the 25 percent nasdaq decline, these New Economy stocks weren't like their well-pruned and manicured cousins. They were stumps, chainsawed beyond recognition or hope of ever growing up straight and tall.

Why can't these stocks grow back? Lots of reasons. Some of the potential buyers saw their assets go up in smoke as the brokerage houses moved hastily to reclaim the collateral pledged to buy more stock. Others just got tired of getting their heads handed to them once the timing restrictions on insider selling came off. In the end, it's all about supply and demand -- there's just not enough money out there to absorb the wall of supply issued by the investment banks and their venture-capitalist allies. And who can blame insiders with 2- or 3- or 4-cent cost bases when stocks trade in the hundreds of dollars? Heck, these insiders do well selling at $2 a share, so what's the difference between blowing stock out at $100 or at $10? No wonder the magnitude of the declines doesn't faze these sellers. They are still thrilled to sell down here. This endless supply of shares for sale overwhelms customers' demand as surely as a river overflows its banks after weeks of rainstorms.

Where did all of that capital go? What will come of the 500-odd companies that came public during this great era? What the heck happened? Was this just the great gold rush, and is it now over?

Well, yes. The great gold rushes, even the ones we celebrate and study in the history books, don't last as long as this one did. They talk about 49'ers, but never about 50'ers, right?

The dot-com gold rush is over. It was just this moment, this crazy wild moment where the glee of the individual investor, the love of the Net, the newfound power of low commissions, and the democratization of Wall Street all coalesced into eighteen months of capitalism sans rigor. Looking back, I think it is amazing that it lasted as long as it did, because the unreal nature of it all, with its instant millionaires and billion-dollar market values, is astounding.

To think that all you had to do was put .com after your name and the public wanted it is, in retrospect, nothing short of amazing. Now, of course, it is the curse, the scarlet letter after the name of a company: a brand saying, Look out, this one came during the frenzy, so be careful; no matter how low you are, you're still liable to lose your shirt if you come within a few stock symbols of this one.

And don't I know it.

In the midst of one of the periodic giant nugget strikes of the past eighteen months -- the Comstock Lode, so to speak -- a company I co-founded in 1996,, an online financial-news provider, came public. We were typical of the era. Our best day was our first day, the day when the market gave us a valuation similar to the Wall Street Journal and the New York Times. My, what was the market thinking?

I remember walking up Wall Street, on my way to get an Italian ice, and people were pointing at me. "Yeah, that's the guy, the guy who struck it rich," as if, somehow, I had actually sold any stock at those prices. (As the largest shareholder, I was totally locked up and unable to sell. In fact, I have never sold a share of TSCM and have actually bought some in the real market.)

The whole nouveau riche thing was actually quite mortifying. I had slogged away for years on Wall Street, first at Goldman Sachs and then at Cramer, working with my wife, and ultimately at Cramer Berkowitz, my hedge fund, and had made a reputation for myself as a stock picker with a passion for the business. I was nose-to-the-grindstone. I was a balding nerd who read annuals in bed and liked it!

Now I was suddenly on the cover of the New York Observer, in a cartoon drawing that put my face on the side of a hot-air balloon, even though I wrote for the rag. Downright insulting! Everywhere I looked, some journalist had multiplied the number of shares I owned by the stock price and deemed me to be worth a quarter of a billion dollars.

Mind you, I never believed it for a second. I was horrified at where our stock opened. We "priced," or came public, at $19.25 a year ago last May, but the demand for the shares was many times in excess of the number of shares we were printing, so we opened in the sixties. All that morning I screamed at the traders on the other end of the line to get the stock open at a level that would make some sense, that would not embarrass us later on, that would somehow resemble our accomplishments and not our call on the future, as bright as that might have been. No such luck. Except for a momentary blip up to $71 on that first day, it's been all downhill from there.

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