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Baldwin: Momentum Shift Delivers 'Shocking Realization' to Some Investors

Aired April 17, 2000 - 1:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

KYRA PHILLIPS, CNN ANCHOR: Well, here's the latest on our top stories at the hour, beginning with the stock markets. Taking a look at the Big Board on the New York Stock Exchange, the Dow Jones industrial is up 88 points and the trading volume is about...

BILL HEMMER, CNN ANCHOR: It is a lot.

PHILLIPS: It is a lot, in the millions of shares thus far. Prices on the New York Stock Exchange and on the Nasdaq spent most of the day on the up side.

Most analysts say today's final hour of trading will be critical. To get some insight on today's trading thus far, we turn to Bill Baldwin, an editor at "Forbes" magazine. In 20 years at "Forbes," he has covered everything from the very old to the very new economies. He's with us now from New York.

Good afternoon.

BILL BALDWIN, EDITOR, "FORBES": I think it's afternoon where I am.

PHILLIPS: Let's start with technology. People really misread technology, didn't they?

BALDWIN: Well, I think an awful lot of people in the past week have had some new discoveries about why you want to own a stock. Maybe 10 million people I put in this category, they've been thinking all along that the reason you want to own a stock is because it goes up. So if it has been going up a lot, you want to buy more of it. The real reason is something very different. You want to own a stock that has earnings or will have earnings, and that shocking realization is really going to change how people look at Nasdaq.

PHILLIPS: And there has been a fallacy of who really benefits by technology, wouldn't you say?

BALDWIN: I think that is a large part of it. It is what I would call the "gold mine fallacy." If you discover a gold mine, you get very, very rich. What if you discover a hot new ship that runs faster, you get somewhat rich, but an awful lot of the benefit of that ship doesn't go in to your pocket, it goes into the pockets of consumers. Let me give you a good example. I mean, Michael Dell can sell you a computer today for $1200 that is faster than something you would have paid $9 million for 30 years ago.. Now, who's making the $9 million? Dell does very well, but it doesn't make a $9 million profit on each PC. Most of the benefit of technology is going into the hands of the consumer and to the general economy.

PHILLIPS: So if the technical infrastructure is on the upswing, are you saying that people that had the dreams of retiring at 40 on their stock options no longer realistic?

BALDWIN: Well, I think some of those people are going to have some second thoughts. There's been a little bit of fantasizing about how often stocks would keep turning in 30 percent plus gains every year. But when that reality comes back down to earth, I think that we still have a very powerful economy, and I think that our technological infrastructure is not going away. In the past decade, we put in many millions of PCs, we have got fabulous new software coming at us every day, we have got millions of miles of fiberoptic cable. Those are not going away, the benefits of the economy are not going away, and the technology is not going to disappear, not its benefits. What might change is people's perceptions about how much of those profits will end up in the hands of people who buy tech stocks.

PHILLIPS: Quickly to dot.coms for a minute, do you think there is definitely a lesson that should be learned here by the public, and the lesson being momentum versus value?

BALDWIN: Well, again, the momentum point is: If this stock went from $40 to $80, I am going to but some at $80 because it is going to go to 120. And people kept doing that to the point where some $40 stocks were trading at 400, and those things are back down to maybe 100 today. They could go back to 40. Momentum can works as fast down, as it can up, and that is a shocking realization to some of today's newer investors.

PHILLIPS: Shock is the key world here. Bill Baldwin, editor at "Forbes" magazine, thanks for being with us.

BALDWIN: Thank you.

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