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Investment in Dot Coms

eBay’s stock has been going up, half again as much this year. With memories of the dot com collapse, is too much investment in online companies a bad thing? eBay makes profits online. How do you decide which dot com is for real, making profits online, and which dot com is just a replica of a really bad memory?

In the days before the burst of the dot com bubble you heard things like, “this is the age of the stock market.” “It will just keep going up!” This author is reminded of seeing an old newsreel of Henry Ford, Harvey Firestone, and Thomas Edison dedicating a monument to the automobile tire in Akron, Ohio and all predicting an unending bright future for the American economy. The newsreel was shot the day before the 1929 market crash!

Certainly today we don’t see a huge number of dot coms pleading for our money and offering a bright future with no risk. Amazon.com and eBay have survived along with a few others. The ones that survived the dot com crash were the ones that actually made money!

Amazon is in books and eBay is in auctions like an online flea market. The question for the long term investor is whether these companies’ stocks are good investments for the long term.

To the extent that these companies have created and then filled a niche they were great investments for those who recognized their potential early and saw their investment grow over the last several years. However, where do they go now? eBay has bought companies such as PayPal and Skype which are, likewise, new online companies. To the extent that eBay can recognize, early, the potential in online companies when they are startups and buy before they realize their potential, eBay will continue to appreciate in value.

The concern about this strategy is that the temptation is to keep buying up other online companies. If this strategy goes too far afield then it resembles Xerox buying an insurance company which they were not able to manage properly.

If your interest is in short term profits, then they say that eBay has another 30% appreciation left based upon current income and projections. This successful online company, the best surviving dot com, will be around for a long time but may not keep up its rapid growth. Then, like a Microsoft, it becomes a “stalwart” with steady dividends but not an online stock with growth potential.

eBay and Amazon have proven that one can make profits online. Online companies are viable but not all dot coms are, as we found out to our dismay years ago. For long term investment potential both of these companies seem to be well managed but seem to be leveling off. At this time these online companies need to find their profits online like other companies do with cost savings, efficiency procedures, and other measures to attract business. That will probably tell the tale for eBay, the dot com that survived and still thrives.





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