by | Dec 12, 1999 | Detroit Free Press | 0 comments

Let’s say I have a business idea. My idea may never make money. And if it doesn’t make money, I won’t be able to stay afloat.

I tell you this up front. Then I ask you to invest in me. What do you do?

A) Laugh hysterically.

B) Say, “Sorry, I gave at the office.”

C) Empty your pockets immediately.

If you are a normal person, you choose B. If you are my boss, you choose A. If you are in today’s stock market, however, you choose C before I even ask the question.

Such was the case with a stock last week named VA Linux Systems. This company is in …the computer business! What a shock! It sells computers that run not on Windows 95, but on an operating system called Linux.

This is not unique. Several huge companies, including Dell and IBM, sell computers like this. And they dwarf VA Linux the way a Sumo wrestler dwarfs a figure skater.

Maybe that’s why, the VA Linux prospectus read: “We do not expect to generate sufficient revenues to achieve profitability…. If we do achieve profitability, we may not be able to sustain it.”

At least they were honest. They were saying, in plain English, “We may never make a dime.”

Who would invest in such a thing?

A better question is: Who wouldn’t?

How to succeed in business

The company went public Thursday. Shares rose 1,000 percent in the first hour. That is not a typo. One thousand percent. The initial price was $30, and it rose to $300 before you could say, “I’m busted.”

As a result, this little company — with no profits and no prospects — raised
$10 billion in a day.

Why? Because the American stock market has flipped. It used to be a place where you had to show products, customers, sales and profits before anyone took you seriously. Now all you need is an idea and the word “.com” attached.

Anyone who thinks we are not witnessing an upheaval as big as the industrial revolution of the 1800s isn’t reading the stock pages. You’ve heard the market is soaring, right? But did you know that many big companies that have factories, sales forces, customers, profits — you know, companies that actually make and sell things — are seeing their stocks fall?

Meanwhile, scruffy grad students with a computer program and a still-wet business card are becoming billionaires overnight.

That’s because everyone wants to be in on the next big thing.

But no one knows what it is.

The secret of computers

So here is today’s frenzied chase for instant wealth: A computer geek begins with an idea in his basement. He doesn’t exactly have money to start a business. And he doesn’t have patience to build a business, since he really wants that huge mansion in Silicon Valley, like, right now!

So he goes to investors. They don’t really understand computers, but they want to get their mansions in Beverly Hills. So they give the computer geek enough to get started, and then, as quickly as they can, they find investment bankers to take them public.

These bankers don’t really understand the whole computer thing either, but they all want their mansions on St. Barts. So do an IPO (Initial Public Offering or, in my book, Idiots Purchasing Orgy). And they tell their richest clients: “This is big. Get in on it.”

Word gets around. These rich clients don’t really understand computers either, but they all want mansions in Switzerland. So they start ordering shares, which drives the price up before it ever hits the market. This, by the way, is the most infuriating hypocrisy about IPOs. They’re supposed to be initial offerings, but somehow the richest clients get to order first.

Thus, when it finally hits the market, this so-called hot stock is zooming upward. And some poor Joe sitting by his computer figures he’ll get in on it. He buys the shares at $300, instead of $30.

But by this point, the computer geek, the investors, the investment bank and the privileged clients have made their billions. They cash out. Which drives the stock down. And the average Joe ends up losing money.

That’s because there’s no there there. It’s chasing ghosts. As one industry watcher said of the VA Linux frenzy: “There’s no fundamentals. People don’t read beyond the first page of the prospectus.”

But then, people don’t read the back of a dollar bill either. If they did, they’d see the phrase “In God We Trust.”

Everyone else should have a bottom line.


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Mitch Albom writes about running an orphanage in impoverished Port-au-Prince, Haiti, his kids, their hardships, laughs and challenges, and the life lessons he’s learned there every day.

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