If you blindly accept the generalization that Internet investments are "a bubble," you're being had. If you believe that somehow it is "too late" for you to profit from investing in the Internet, you're wrong.

And if you think that somehow you can't do it, you're probably underestimating yourself.

You can't do it if you don't have money to invest--meaning money to risk. Web stocks are more volatile than others, and the sexy ones are considerably more expensive.

But if you have money to invest, can handle some stress and have time for some research, step up to the plate.

The growth of Internet-related stocks has been phenomenal, and even the most conservative projections for the growth of these businesses show that we are at the very early stages of development. And there are perfectly sensible ways to avoid the most risky Internet investments while still reaping the rewards.

Sure, it seems like madness sometimes. There's an Internet merger, acquisition or alliance every day, sometimes three or four. There's this dot com and that dot com and too-good-to-be-true or too-good-to-be-you tales of vast enrichment. Stock prices can seem nuts by conventional standards.

Plus, those of us who are normal have to overcome the psychological "sick of" barrier. We're sick of everyone going around talking about the blessed Internet. We're repulsed by the greedy gold-rush hysteria, the sleazy arrogance of the phony visionaries, the seers, the true believers, the hucksters touting their IPOs on CNBC.

But get over it.

Above all, avoid the "too late" syndrome. Many said it was "too late" a year ago. But if you had merely read the papers and invested a thousand dollars each in three companies that were already household words--Amazon.com Inc. (the bookseller); America Online Inc. (the multi-function online service provider) and E-Trade Group Inc. (the online brokerage)--your $3,000 investment would be worth roughly $14,000--just from making the obvious moves. Understand also that it is probably wise to stay away from many of the latest initial public offerings. Wait for some track record, unless you know something everyone else doesn't. Also, there is a great demand for Internet stocks and a limited supply with unusually heavy holdings by investment banks.

So how do you begin to find the stocks that hold the most promise?

First, get online if you're not already. If you don't do the Web, don't buy it. Plus, all the research tools for finding out about stocks are online, as are the brokerages you need to make purchases for reasonable commissions.

Second, try to develop an understanding of how Internet-based or Internet-assisted commerce works. Many analysts divide it by sectors: Internet service providers; "portals," or sites such as Yahoo that attempt to attract millions of viewers with a variety of services; retailers such as Amazon.com; so-called business-to-business firms that we don't read much about but without which the Web would not function--the people, for example, who make the equipment and software that lets Federal Express keep track of your shipment.

Adam Dell, an associate partner at Woodside, Calif.-based Crosspoint Venture Partners, suggests using a kind of "value chain" analysis to find out who's who: "There's a transaction on the Web, a buyer and a seller of a good or service, and there are a number of participants that contribute to that transaction. . . . It's a framework for understanding who's going to win and why."

I just bought a very large cup of coffee for $1.50. (Okay. But it was really good coffee.) The woman who sold me the coffee keeps some of the money. But the company that sold her the coffee grinder gets some too, not to mention the people who sold her the coffee maker and the coffee thermoses, and, of course, the beans and the cups and the water to make the coffee. And so on.

They're all links in the value chain, each vying for a chunk of my $1.50. If they were publicly traded, since she's doing so well and charging so much, I might try to find out who's getting the biggest chunk and consider buying their stock.

Just for the heck of it, I began performing a similar analysis on E-Trade, the online brokerage company whose stock has risen more than 600 percent in the past year. I went to the washingtonpost.com stock research site (free, one of many available) and in the course of a half-hour discovered the following:

For purposes of promotion and catching customer eyeballs, E-Trade has marketing agreements with America Online, Yahoo Inc. and Sprint Corp., among other companies.

To provide its customers with information, it has an arrangement with TheStreet.com. It gets its charting data from a company called Big Charts, which is a subsidiary of Marketwatch.com. It has a customer service center in Alpharetta, Ga., with hub servers operated by Sun Microsystems Inc. It gets its own computer hardware (routers) from Cisco Systems Inc. and purchases transaction processing applications from Oracle Corp. and BEA Systems Inc.

This is just for starters. All of these companies are benefiting, directly or indirectly, from the $19.95 commission E-Trade charges for an average transaction. If you had never paid any attention to Internet investing, you would have gotten hold of several seriously good investment possibilities from this exercise alone.

Then it's homework time. BEA Systems, I'd not heard of. So I looked it up and learned it is publicly traded. At no cost to me, using the Internet, I looked at its sales figures, growth, information about its recent contracts and saw that its stock price has appreciated more than 350 percent in the past 26 months and that it's rated a strong buy or moderate buy by 10 of the analysts covering it, and as a hold by two others, though like almost all the Internet companies, it has no profit.

And guess what: It just signed a contract with Amazon.com to supply its transaction platform.


What's a transaction platform? Beats me. I'd need to find that out. Is this an Internet stock? Not in the "pure" popular sense, but there's no need to be pure about it. It's a "business-to-business" company, not very glitzy. Should I go for a fancy-schmancy dot com instead? Not necessarily.

Listen to this: The Washington consulting firm Bond & Pecaro has just done an extensive study of Internet-related company valuations. According to Jeff Anderson, a principal with the firm, the study found, among other things, that while the business-to-business segment "is the largest and will be the largest"--indeed, that it will "dwarf" the companies we read about all the time--the stocks are essentially going at a discount compared with the more exciting-sounding names.

Because traditional methods of valuing stocks do not apply to new companies in this new and uncharted field, the investor, Pecaro points out, has to develop comparative measures for each segment of the Internet world--"page views" for some Web sites, number of subscribers for Internet service providers, advertising revenue for portals, and so on.

The nation's best-known Internet stock maven, Mary Meeker of Morgan Stanley Dean Witter, says that investors examining a company should ask three simple questions: "How big's the market? How high's the market share? Who's number one?"

Take eBay, which has appreciated 804 percent since it went public nine months ago. It is very pricey in traditional terms, at $135.75 per share, and has a sky-high price-to-earnings ratio, or P/E. But it has all the characteristics that top Internet traders and analysts look for: It was the "first mover" in its category, that is, the first to successfully launch a completely new concept. It has millions of customers, and, by its nature, keeps them coming back.

"EBay is a model of increasing returns," said Dell. "The more customers they have that are putting things up for auction, the more people come to buy things. The more people buy things, the more customers come and put things up for auction. It's a positive feedback loop. The advantage is exponential over time."

It's just beginning to get competition--from a variety of companies--so watch out.

The wariness traditional investors have of buying eBay, or other successful Internet stocks, is that the earnings expectations as reflected in the stock price (the P/E ratio) are staggering. This is the genesis of the notion of Internet stocks as "bubbles."

But in the view of millions of investors, including big institutional investors, the expectations for a company such as eBay are not unrealistic in light of the fees being generated by auctions (probably $20 million this year) and by the number of people who haven't even sampled them but probably will.

We all would have liked to be in on the ground floor of an eBay. But let's face it, that's not for us working stiffs. Keep your expectations under control. Even the professionals at the Internet mutual funds impose severe limitations on how much they invest in newer companies. Monument Internet Fund puts roughly 10 percent in what it calls "emerging" Internet companies (with $25 million in revenue but growth expectations of 50 percent or better per year.) It puts more in "premier companies," such as Cisco.

But you can get in a lot earlier than many others by staying tuned in. Is there some commercial site on the Web that you like? If you like it and use it and pay money to it, chances are others are, too. Check it out as an investment.

Read some or all of the industry publications--the Industry Standard, a newer magazine called Business 2.0, Internet Weekly and others. They pay people to report on up-and-coming companies, both consumer-oriented Internet companies and companies that service other companies, such as BEA Systems. Many have not gone public yet but might.

It is true that you can now purchase shares in Internet mutual funds, and that other growth-oriented mutual funds are invested in Internet stocks. That's certainly better than staying on the sidelines.

But picking them on your own--if you can afford the risk--is more fun, more challenging, and definitely more educational.

And you will learn about the Web--which you're going to have to do anyway, sooner or later, sick of it or not.