Getting Started in Internet Investing (Getting Started in Series)

Overview

Put your money where your mouse is with this comprehensive guide to Internet investing
Getting Started in Internet Investing is a comprehensive guide to Internet investing: what it is and why it is a fast-growing investing option. Readers will learn how the Internet and Internet businesses are going to change during the next decade. Chapters cover: asset allocation, risk tolerance, investment choices such as mutual funds which focus on Internet...
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Overview

Put your money where your mouse is with this comprehensive guide to Internet investing
Getting Started in Internet Investing is a comprehensive guide to Internet investing: what it is and why it is a fast-growing investing option. Readers will learn how the Internet and Internet businesses are going to change during the next decade. Chapters cover: asset allocation, risk tolerance, investment choices such as mutual funds which focus on Internet stocks, specifically, how to research Internet stocks, and more.
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Editorial Reviews

Booknews
Identifies issues to consider when looking for an internet stock that might actually make money. The author covers the various internet sectors, company management, asset allocation, risk tolerance, mutual funds that invest in the internet, Wall Street lingo, and how internet businesses will change during the next decade. Annotation c. Book News, Inc., Portland, OR (booknews.com)
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Product Details

  • ISBN-13: 9780471396819
  • Publisher: Wiley, John & Sons, Incorporated
  • Publication date: 2/1/2001
  • Series: Getting Started In..... Series , #41
  • Edition number: 1
  • Pages: 240
  • Product dimensions: 6.15 (w) x 9.22 (h) x 0.67 (d)

Meet the Author

PAUL KATZEFF is a seasoned personal finance writer with Investor's Business Daily. Previously, he was the Boston correspondent for Money magazine for a dozen years. Katzeff is the author of Getting Started in 401(k) Investing (Wiley), and the 10 Minute Guide to 401(k) Plans.
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Read an Excerpt

Note: The Figures and/or Tables mentioned in this sample chapter do not appear on the Web.

How the Internet Is an Investment Opportunity

Levi Strauss didn't make money panning for gold. He built his fortune peddling denim jeans to hordes of gold miners during California's Gold Rush.

The lesson for anyone trying to figure out how to invest in the Internet is that the key is the online population explosion. You don't need to be a software whiz or computer nerd to make money off Net mania.

It is the throngs of people flocking to use the Internet who create opportunities. Collectively, they make up a huge pool of shoppers, eagerly buying and selling all sorts of goods and services. They provide advertisers with a sizable audience. In their stampede to get online, they are buying new computers, software, and doodads like modems. To carry their calls, phone companies and cable TV firms are stringing millions of miles of fiber-optic cables. High-tech foundries race to fabricate enough computer chips for the innards of everything from cell phones to servers.

BUILD IT, AND THEY WILL COME

You can invest in this cyberspace migration in whatever way best suits your temperament, checking account, time frame, and goals.

You can buy stock in companies that exploit this electronic revolution one at a time, like a sharpshooter picking off ducks in a carnival shooting gallery. Or you can invest in several at once—even in entire categories of businesses—like a fisherman casting a wide net.

Whichever approach you take, you'll be helped by the fact that the online population attracting all of these companies is growing as fast as the crowd filling a ballpark before the deciding game of the World Series.

Just look at the trends:

  • The number of Americans using the Internet hit 107 million in 1999. That multitude soared to 137 million in the year 2000, the research firm International Data Corp. says.

  • Business conducted worldwide over the Internet will balloon to $6.8 trillion by 2004. That's up from $657 billion now, as data from Forrester Research shows in Table. 1.1. How huge is $6.8 trillion? It's twice as big as China's whole economy was in the late 1990s.

  • Consumer spending alone by Americans will account for $184 billion of that (see Figures 1.1 and 1.2). That's about the size of the entire economy of, say, Chile. That much retail spending will be a hefty hike from the $20 billion in retail shopping by Americans in 1999.

  • In pursuit of those online dollars, Internet advertising will skyrocket to $33 billion by 2004. Of that, $22 billion will be spent pitching messages to eyeballs onscreen in the United States, up from a modest $2.8 billion spent in 1999. The 2004 total will exceed the money spent on advertising in magazines and yellow pages and on radio.

  • Investors will have $3.1 trillion of their dollars invested through online accounts by 2004. That will be an eightfold increase over the amount of online investing in 1999.

  • Contrary to the popular image, Net surfing is not an exclusively male pastime. Already, women are 41 percent of the Internet population, says the research firm Angus Reid Group. And by far more women than men—9 million versus 6.5 million—went online for the first time in the most recent six-month period, according to a head count by the Pew Internet & American Life Project.

That explains the prominence in online sales of goods and services aimed at women at least as much as men: clothing, flowers, housewares, home appliances, specialty gifts, health and beauty aids, groceries.

WHO'S ONLINE?

So people are swarming online. But exactly who are they? The largest single age group is young Baby Boomers—people 35 to 44 years old. As the pie chart in Figure 1.3 shows, they account for nearly 25 percent of Internet users, according to Media Metrix, a New York company that tracks demographics in cyberspace.

The second-largest online age group is young adults aged 25 to 34. These Gen-Xers, who were born after Baby Boomers, make up about 21 percent of Net users.

Older Baby Boomers and seniors—people 45 to 64 years old—are the third-largest slice of the population pie, at 20 percent. Next in line are members of Generation Y, 18-to-24-year-olds, who account for more than 17 percent of the cyberpopulace. These are college and grad students, young military service members, and workers likely entering the labor force for the first time.

The balance of the Internet's population amounts to almost 17 percent, and is made up of people younger than 18 and older than 64.

The differences among various age segments of the Net's population are subtle, but they have dramatic consequences at the cash register:

1. Nearly two-thirds of Internet users are free-spending young adults or increasingly affluent Baby Boomers.

2. Boomers and seniors along with 18-to-24-year-olds are the most frequent newcomers to the cyberneighborhood.

What does that mean to you as an investor?

For one thing, it means good news. Those monied Boomers and seniors, says Media Metrix, "surf the Net more frequently, stay there longer, and check out more Internet pages than even their college-age counterparts." That, Media Metrix adds, debunks the myth that older Americans are technolaggards. This translates into revenues for lifestyle-and health-oriented web sites, says Doug McFarland, senior vice president of Media Metrix.

"Internet marketers with an eye on the future are discovering how focusing on this overlooked, high-spending audience can be a wise business strategy," McFarland reports on his firm's web site. It gets better, Media Metrix says. These Boomers and seniors have disposable income, and they spend it. They're the age group most likely to own fax machines and copiers, large-screen TVs, and satellite dishes. Nor is their spending limited to high-tech gadgets. They have the most credit cards and highest usage, they have the highest percentage of frequent-flier members, and they are more likely to buy a new car than a used one.

They also turn the stereotype of young adults as techno-addicts on its head. Compared with 18-to-24-year-olds, Boomers and seniors spend an average of 6.3 more days per month online, says McFarland's firm. They also stay logged on 235.7 minutes longer, and they view 178.7 more unique pages each month. As Baby Boomers might say, those are far out economic numbers, dudes.

And as Boomers and seniors grow more used to finding their way around the Web, they're likely to spend more time—and money— there, McFarland says. That's money in the bank if you are an advertiser looking for eyeballs, or if you are a retailer looking for customers, or if you are a business exec looking for colleagues in your industry, or if you are an investor in those kinds of online businesses.

ALL GOOD THINGS MUST PEAK

The Web's trend sounds perfect, doesn't it? Exploding numbers of extravagant big-spenders, fueling an economic boom without an end in sight.

The trouble is that the Internet's boom will have ups and downs. The enormous stock-market gains by Net businesses in the late 1990s, for example, were put into painful perspective by the abrupt setback that started in the spring of 2000.

The Net's popularity will also go through longer-term cycles, just like other aspects of human life. Take sports. In the 1920s and 1930s, baseball and boxing reigned supreme. Today, boxing still has lots of fans, but it is far from the audience magnet it used to be. Heck, even baseball has slipped behind such sports as auto racing in drawing spectators.

In the case of the Internet, its phenomenal growth will be impacted by fluctuations in the online population.

Online retail trade will be affected by the buying habits of each age group.

Its current explosive expansion will level off in 2004 as the Net runs out of newcomers, Forrester Research forecasts. But surging growth will return to the Net as today's teens and twentysomethings who make up Generation Y approach their peak earning years in 2010.

On the business-to-business (B2B) side of the Internet, the Net will flourish as businesses expand their online activities. As expansion levels off, so will new investment opportunities. This cycle will occur in one geographic region after another, Forrester predicts. The more economically advanced a region is, the sooner it will peak and then level off.

North America will go through it first, leveling off by 2003. Western Europe will follow, leveling off in 2004. Asia, Africa, and the Middle East will start what Forrester calls the hypergrowth cycle in 2002, leveling off by 2010. But the stronger economies of Asia will ramp up faster along the way. In between, Latin America and Eastern Europe will see their businesses start the cycle in 2004 and 2005, respectively.

In other words, growth will be carried like the baton in a relay race. One region after another will sprint forward. As an investor, it won't matter much which region is hot at any given time. All you need to do is invest in companies doing business where the action is.

SHOW ME THE MONEY

The most common activity on the Net is studying nineteenth-century Russian literature.

Okay, just kidding.

The thing people are most likely to go online for is e-mail. From an investment perspective, that's almost worse news than studying old Russian writers would be. At least fans of Leo Tolstoi and his literary comrades would probably buy a lot of very expensive caviar, Siberian sable, and spicey vodka.

The trouble with e-mail is that hardly anyone needs to pay for it. E-mail service, in fact, is often available for free. So don't bother looking for e-mail service providers in which you can invest.

E-mail, though, is crucial to many companies' plans for making money on the Net. That's because they use e-mail as a come-on, a loss leader, a freebie to lure customers in the front door. Once customers have signed on for free e-mail service, they become part of a potential advertising audience. They're also potential retail shoppers. Truth to tell, they are fish in the barrel. They are a potential customers for all of the pay-for-service features offered by that Internet portal providing free e-mail.

And people do spend money online.

With a cumulative price tag of $7.7 billion, Americans spent more on leisure travel than anything online in 1999. But they did spend freely on other retail merchandise and services, as shown in Table 1.2.

Merchants sold $3.17 billion worth of computers, TVs, and other consumer electronics. People shelled out $1.62 billion for clothes, shoes, and apparel accessories. Shoppers paid $1.24 billion for software and another $1.2 billion for books. Even flowers are nothing to sneeze at. People ordered $354 million worth of petals, pots, stems, and bouquets.

All of those totals are projected to grow dramatically through 2004. New industries will get in on the online action, helping to boost future consumer outlays.

For example, the auto industry did virtually no online retail business in 1999. But it sold cars, trucks, sport utility vehicles, motorcycles, and so on worth $400 million in 2000. Business is expected to grow nearly fivefold in 2001, and reach $16.6 billion by 2004. And that big-ticket figure doesn't include a penny of the $200 million in their own purchases of parts and materials that Detroit's Big Three automakers plan to steer through an online exchange.

The car industry is hardly alone in harnessing the Net for wholesale commerce. Paper, chemicals, large-scale real-estate owners, convenience- store suppliers, home-building suppliers, restaurant fish buyers, even consultants for dot-com firms . . . you name it, and mainstream industries are also jumping on the Internet bandwagon.

They see the Net as a place where they can force suppliers to compete head-to-head for business, leading to lower purchase costs on the ingredients they use. The speed of communication and the ability to centralize information will help them slash inventory delivery times.

It gets even better. Your investment choices are not restricted to just online retailers (often called B2C or business-to-consumer firms) or B2B enterprises. You can invest in companies that rarely or never set foot in cyberspace, but whose own revenues expand because they sell goods and services to businesses that do trade online. Parcel-delivery services like to joke that they don't sell anything online and yet are the biggest beneficiaries of the Internet. But the FedExes of the world do help customers track deliveries by conducting online dragnets.

Finally, one of the largest and healthiest categories of Internet investments is made of companies that build the Net's skeleton. These are firms that make the Internet's infrastructure: the telephones, computers, and software, the microprocessor guts of so many high-tech gizmos, the underground cables, wireless transmission towers, and digital cameras—all of the things that must work behind the scenes so people can receive e-mail, send birthday cards, play online games, order computer monitors, listen to music, catch up on news, deposit a paycheck, and gossip about the hottest Internet stocks.

The investment opportunities are concentrated in the fields of technology and telecommunications. But they also span every sector of industry.

In Chapters 2 and 3 we'll explain how to tell one category of Internet business from another. And starting in Chapter 4 we'll discuss how to make investment decisions.

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Table of Contents

Introduction.

How the Internet Is an Investment Opportunity.

How the Internet Works.

Internet Sectors.

First Steps with Internet Investments.

Weighing Investment Risk.

Choosing Between Stocks and Mutual Funds.

Basics of Internet Investing Through Mutual Funds.

Internet Funds Aren't All Alike.

How to Tell One Internet Fund from Another.

Which Internet Fund Should You Buy?

How the Pros Invest in the Net.

Shotgun versus Sharpshooting Approach.

Ten-Step Investment Process.

Basics of Picking Individual Stocks.

How to Use the Web for Research.

Glossary.

Index.

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