The day trader on tonight's News Hour with Jim Lehrer said she liked to watch momentum.

What's that? the interviewer asked. She pointed to the graph on her screen, showing high/low/close, up/down volume, and a dozen other graphic and tabulated metrics, and explained: "You see here? Where it goes down and then back up, it's the momentum that shows you how steep it is, how fast the stock is moving up, or down."

Oh yeah.

The Digital Traders site offers the pithy advice to "trade only momentum stocks."

This is some kind of brave new world. After a little reflection, I imagine it has to do with the (dollar? share?) volume of trading, times the rate of change of the stock price. Sort of like the physical definition, of mass times velocity, I guess.

Something being traded heavily, going up fast, would have a lot of "upward momentum." She would like that. Hop on board, it won't be easy to turn this behemoth around, and there'll be plenty of time to sell when it does. "Downward momentum" would pretty likely be something to avoid.

Just ratchet up with that rising tide, get out overnight, and make a year's salary in a month. Pretty fun!

In Las Vegas, there isn't a lot of mystery: the House wins. The occasional chump walks out of the casino flush, but the House wins. That's how they can afford to keep those lights flashing. But on Wall Street? (Wire Street? Ether Avenue? The Euphoria District?) Everybody's a winner.

Right?

Yahoo! has just about nothing to sell, except advertising space in this brave new medium. They have several hundred employees. The market says this company is worth around thirty four billion dollars. (As of February 5, 1999, anyway!)

$34,000,000,000

Or about forty or fifty million bucks per employee.

Oh baby. YHOO moving 5 or 10 percent in a day, that's a lot of momentum. What would a Yahoo! employee be doing to add his or her $1,000,000 worth of value (on a slow day) to this corporation? Surfin' the web? Judiciously selecting between outstanding content and trivial blather? Spotting the next rising star? Making the ads flash a little faster, brighter, more garishly? Writing a clever Javascript user interface? Cleaning stale garbage out of the database?

It's a little hard for me to imagine.

Trading volume times the rate of change of the share price lacks mass. It's massless. A couple thousand day traders playing the same game can inflate something of almost no value into a work of imagination that has the appearance of something mighty, but none of the substance.

On the particular day I looked, YHOO was in the neighborhood of companies like 3M, US West, Honda Motor Company, Matsushita Electric, Sony, Boeing. The market says Yahoo! is worth about the same as any one of those companies.

This is where the bubble metaphor comes in. A little bit of soap and water can make something real big. And a gentle breeze can make it zoom up, or down. Perhaps with a good sound track, it could give you the sensation of a powerful trend.

But man oh man, it could disappear in a hurry.

Postscript, 10 April, 1999

A rising tide continues to lift most of the boats. In the just over 2 months since I wrote this, the top ten market capitalizations have gone from 2,113 to 2,385 billion dollars. A 13% increase in 2 months, not bad. And all this with virtually no inflation... Right.

Yahoo! has gone from 34 to 42 billion dollars, and moved up a few spots, to number 91.

P.P.S., 16 October, 1999

The tide's come in and gone out, but Yahoo! is still inching up. #80, and $45B. I updated the list, with both April and October snapshots.

P.P.P.S., 13 November, 1999

In the October issue of Fidelity Investments Funds Network Forum magazine, the interview with the president of "Van Wagoner Post-Venture" brought a new company to my attention, Ariba. The interview question was What's up with Ariba? This was Van Wagoner's biggest holding as of the publication date, and his answer was bullish:

...Ariba is evolving from an e-commerce software leader to a software leader, and I forsee it becoming a technology bellwether.

Sounds like I ought to check it out. Their website reports their latest quarterly results, a record $17 million in revenues. For the year, their revenue was up 443%, to $45 million. Pretty exciting growth, but a relatively small enterprise, eh? The "profit" figures don't make the headline, because they don't have any. In their last fiscal year, they lost almost $15 million if you don't count amortization of stock-based compensation, and more than $29 million if you do.

Strong growth, revenue in the mid-double digit millions, losses almost as big as revenue. Ok, what's that worth?

They went public this summer, started well under $100/share and on Friday, it traded between $190 and $205/share. Woo-hoo! Yahoo! reports their market capitalization is right about 9 billion dollars. Price to REVENUE ratio of about 200. Price to "earnings" of negative 120.

It would be nice to be on that train, but somehow, I don't think I'm prepared to run after it and try to catch it.

Tom von Alten      tva_∂t_fortboise_⋅_org

Home Weblog Useful Sporting Sailing Friendly Site map Fine Print