Hey all!Many of you may be scratching your head in amazement and wonder at how a stock like Sycamore Networks could rocket from it's IPO of $37 to $270 within minutes of the bell last Friday. You may be asking "who are these crazy people who are buying this sort of stuff? Well, I didn't buy Sycamore, nor would I do so on opening day. But my question is not who is buying these stocks like Sycamore, but rather who is NOT? Tonight I take pen in hand, or more accurately, put fingers to keyboard, to give you my thoughts on investing in the future and in particular, investing in the internet. This turned out to be a lot longer than I thought (hey, once I start writing I automatically go into 50 minute lecture mode!) so I have broken it into roughly three nonoverlapping sections and will post each one separately.This is not an attempt to promote any particular stock or stocks - not my thing. What I hope to do is to cast the so-called "internet companies" in a light which will hopefully reduce some of the fear that many people have that this is all just a bubble or tulip craze and will come crashing down sooner or later. I would hope that at the very least you will go away with a sense of "choice" as to whether or not you wish to invest in the internet rather than avoiding doing so out of fear and ignorance. Information and choice is what intelligent investing is all about.I. The internet buildout: Everyone here is aware of the pervasiveness of the internet and world wide web so I'm not going to review how we got here. Suffice it to say that access to the internet is growing at phenomenal rates, not just in the developed countries but in the underdeveloped and undeveloped as well as they try to "leap frog" their way into the present day economy. This huge growth presents investment opportunities. Early on, the old technologies based on the familiar telephone line and modem sufficed - but no longer. Anyone who has ever seen a 150 or 300 baud acoustic modem in operation knows what I mean! Even before the old copper-wire based internet was maxing out, engineers were hard at work developing the technology for sending information down glass fibres - in other words, light. Bandwidth is all about sending more information, faster (e.g., at the speed of light). In other words, increasing the internet capacity by factors of many magnitudes. We are no longer limited to text-based email messages, we can send and receive sound (voice, music), graphics (images, photographs), and video. And where do we go from here? Well, for one thing, the distinction between the internet, television, and the telephone will disappear as technological developments merge the three into "one wire." Obviously then, one way to invest in the internet is to buy shares in those companies that are building out the internet. Look for leaders in fibreoptics R&D and products. For some reason, JDS Uniphase comes to mind. Without getting technical (which I can't do anyway for fear of embarassing myself), they produce a large proportion of the active (signal producing, splitting, etc.) and passive (monitoring) equipment necessary for the laser-based, fibreoptic internet. If one believes that the internet is not only here to stay but will continue to grow even at modest rates, how could one NOT be invested in a company like JDS Uniphase?Look for the leaders in the networking field, the companies that are buying and building the components and putting them together into "packaged networks" that are then linked to other networks and on to still others. Nortel sound familiar? Lucent? How did all those PCs at work get hooked together, and to the internet? Chances are Nortel or Lucent is involved. And by the way, this is where Sycamore Networks is trying to muscle in on the big guys - they purport to be providing a completely fibreoptic network (as opposed to the "integrated" copperwire/fibreoptic networks provided by the Nortels and Lucents. Wonder why the frantic buying last Friday? But don't worry, Nortel ain't going to stand by and let some upstart corner the market on completely fibreoptic networks. So, in a word, if one believes the internet is not only here to stay but likely to grow, how could they NOT be invested in a company like Nortel? Think about how we actually "connect" to the internet. Little black boxes called modems, right? Cable modems are becoming popular because they are broadband. But so too are ADSL telephone modems. And you've heard about set-top boxes that will allow internet access for your TV (talk about channel surfing, imagine what all you couch potatoes could do with a remote control and almost an infinite number of websites!). Now ask yourself, how do they work? Well, think "chip." You know that Intel chips powered a whole generation of PCs. Who produces the chip to connect my PC or TV to the internet? Hmmmm, ever heard of Broadcom for one? Broadband Communications, get it? Need I say it? If one believes the internet is here to stay blah blah blah, how could they NOT be invested in a company that produces most of the chips to connect people to the internet?Now someone has to organize access to the internet as well as it's content. We can't just plug ourselves into any old phone jack. And even if you could, where would you go, how would you find your way around? Ah, hah! Ever heard of AOL? What about Excite@Home? Think Internet Service Providers, think content providers and organizers. If the internet is here to stay, how can you NOT be invested in the likes of AOL, AtHome, Yahoo! ?And thinking a little more about content providers. Ever wonder where they put all that stuff? And how do they get it out to the world at large? Think banks of servers, hmm, Sun Microsystems come to mind? Secure and reliable corporate and website data banks? Think EMC, think Brocade. How could one believe in the internet and the huge amounts of information it provides and NOT be invested in the likes of Sun, EMC, or Brocade?And on the horizon? You see all those people around with cell phones attached to their ears? Well, they are no longer just for making phone calls. With new technology they will be able to connect to the internet. Out at the cottage and want to check your email, no problem. At work and want to turn the oven on so supper will be cooked when you get home? Hey, no problem. And get this, someone is making the chips to do all that! And low orbit satellites will provide the connection. Yep, how can you believe in the internet and NOT be invested in a company like Qualcom or GlobalStar?Well, I think you get my drift. If you can honestly conceive of the internet just "up and disappearing," if you can just as honestly say that we would be better if the internet were to "just shut down," then obviously we don't have much to say to each other. But if you recognize that the internet has already changed our lives, if you have an inkling that the changes are going to be even more dramatic as time unfolds, then how can you NOT be invested in the companies that are producing the "picks and shovels" of the internet?Next topic: Yeah, but what about valuations?Ted
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