Investors went absolutely bonkers last week over a company called Netscape Communications Corp., which has never earned a dime in profits but which happens to make what at this moment is a very sexy product: computer software for users of the Internet.
Netscape's founders originally planned to offer 3 million shares to the public at $12 to $14 (while keeping 35 million in their own hands). That would put a market value on the entire company of about a half-billion dollars -- astronomical for a firm with gross sales of only $17 million for the first six months of this year and no hopes for even a minuscule profit before 1997.
But $14 a share wasn't enough! When the stock hit the market on Wednesday, frenzied investors drove the price to $75. It's now settled down at about $50 -- meaning that the company is valued at around $2 billion, or over 100 times projected earnings two years from now.
The Netscape sale "probably sets a new point on the scale of egregiously overpriced merchandise," said John Kinnucan, a portfolio manager at Crabbe Huson Group in Portland, Ore. The mania, some analysts believe, could be a signal that a climactic end to the bull market is at hand.
But Netscape could be telling us something even worse: that lots of otherwise smart Americans continue to believe that the way to succeed is not through diligence, frugality and imagination -- values of the past -- but through cleverness, quick trading and connections.
That's why it was perfectly appropriate that the Netscape craziness occurred at the same time the House and Senate were investigating Whitewater.
Forget Whitewater's legality or morality for a minute and look at its mechanics: With borrowed money, Bill and Hillary Clinton and their partners James and Susan McDougal bought land in the Ozarks for $880 an acre from a group that had purchased the property just 19 days earlier for $440 an acre. The partners figured they could sell lots at more than $880 an acre and make a big, fast profit. Alas, it turned out that $440 was probably the proper value for the land, and the Clintons and McDougals lost a bundle.
For the style of investing they employed in Whitewater -- as well as in cattle-futures trading and stock-shorting -- I've called the Clintons "Outsmarters." Like many investors, they figure they can beat the system through inside advice and overall brilliance, even if they know next to nothing themselves about real estate and cattle.
"Partakers," by contrast, is my term for investors who understand that the best way to make money is to share in the long-term profits of successful businesses.
Outsmarters were out in force last week when Netscape was selling shares to the public. The Post reported that even Tom Brokaw, the NBC News anchorman, had bought 200 shares for himself and his daughter.
Technology has been red hot this year, and Outsmarters have been buying up mutual funds that specialize in such shares, like Fidelity Select Electronics. But that fact alone doesn't explain the Netscape frenzy. Instead, as Damon Runyon once wrote, referring to a racetrack tout who would pull on the sleeves of clients as they tried to snub his lousy advice: "But wait! A story goes with it!"
The story in this case can be found on the cover of ASAP, the high-tech supplement to Forbes. There, in an empty office, in chinos and Topsiders, sits 24-year-old Marc Andreessen, Netscape's co-founder. The headline says: "George Gilder Thinks This Kid Can Topple Bill Gates." The story, heard over and over last week, is that Netscape is "the next Microsoft."
Well, maybe. While Gilder's writing is nearly impenetrable, he has, over the past few years, been the most prescient observer of what he calls the "microcosm" -- the world of bits and bytes sent through space.
His latest theory is that computers themselves are becoming "hollowed-out" shells, mere dumb terminals in the age of the Internet. There will be no need, for example, to store complex programs in your own machine at home when you can pluck them off the web: "The network is the computer."
If he's right, then Andreessen -- whose Netscape stock is now worth about $50 million -- could indeed become the next Gates, though so could any of several hundred other entrepreneurs (including Gates himself) who are also trying to make the Internet more navigable.
There's another problem besides competition. The Internet may be a fad. In his wonderful book, "Silicon Snake Oil," Clifford Stoll, himself an Internet pioneer, lists his strong reservations about such computer networks: "They isolate us from one another and cheapen the meaning of actual experience. They work against literacy and creativity. They will undercut our schools and libraries." And, in the end, it may be the inhumanity of the net that limits its growth.
This synthetic quality of the net and the frenetic pace of the on-line communications -- of speedy, choppy e-mail messages in the void -- have their analogue in the Netscape mania.
Daniel Defoe, who wrote not only "Robinson Crusoe" but also some of the best prose ever on finance, had it right 300 years ago when he decried promoters who "erect new stocks" and "with air and empty names beguile the town." They "divide the empty nothing into shares, and set the crowd together by the ears."
Andreessen and his partners don't mean to be slick salesmen. They're sincere, probably brilliant scientists and artists. But in America today, they're playing to an audience that wants to be beguiled, that thinks there's a trick to getting rich, and why can't we get ours? There's a danger here that grows by the day.