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SmartMoney Magazine

Update: Hit and Miss

By Richard Ten Wolde |Richard Ten Wolde Archive |Published: December 19, 2000

IT WAS A SCARY time to be in the market. After a healthy first quarter, the Nasdaq index plummeted some 26% in April and early May 2000. The Standard & Poor's 500 fell by 6% over those same seven weeks.

Yet the economy was still chugging along, and the correction's most severe punishment was saved for companies based on flaky Internet ideas, not those built for longevity. So we viewed the meltdown as an opportunity to pick some good small companies on the cheap. The result was "The Magnificent Seven" in our June 2000 issue — seven companies that sported solid balance sheets, robust growth and real products.

School of Hard Stocks
In "Regrets? They've Had a Few" (June 1999), we juxtaposed the fortunes of the tech haves and the tech have-nots. Some tech investors we talked with could afford Jamaican vacations and sports cars. Those on the sidelines lived more humble lifestyles. But with the jarring jolts that tech stocks have endured in the past year, we're wondering who's got regrets now?

Not Mary Pugh, a 50-year-old marketing consultant who invested in tech and Web stocks against the advice of her broker. She hasn't flinched during the past 18 months. In early 1999 she bought Socket CommunicationsSCKT), a maker of software for handheld devices and laptop computers, at 50 cents and sold near its $50 high last March. She wasn't as fortunate with e.Digital (Sorry, no snapshot available), which writes software used to interface PCs with digital cameras and recorders. Pugh, who beat the Nasdaq in 2000, bought e.Digital at about 70 cents a share. It rose to more than $24 a share and then imploded, falling to $3.50 a share by mid-November. Pugh held on, watching her profits wither. Still, her position in that stock has gained $600,000. "People should stop investing in Weyerhaeuser and other tree-and-forest companies, and they should start investing more in tech," she says. The technological advancements to date haven't "even begun to scratch the surface." (

On the other hand, John Knott, a 25-year-old college student back in 1999, has some regrets. He admits he got way too cocky. It isn't hard to see why. In two years he had turned $10,000 into $220,000 by trading options of America Online (AOL) and EMC (EMC), among others. But a bad bet on Dell ComputerDELL) options in 1999 drove the portfolio down to $175,000 in eight weeks. He then made a critical error: He took a huge position in YouthStream MediaNETS), a small marketing and Internet company. He bought shares for $32 in late 1999, and the stock fell to $18 during the next two months. By the time he got out, his portfolio was down to $80,000. ( (

Nonetheless, Knott's investments overall shot up about 700%. He has since used the money to pay his taxes and student loans. "If I had the money to invest now, I would be a lot more conservative," he says. "It's been tough. There were a lot of lessons learned." Since June 2000, Knott has worked for Worldco, a Manhattan day-trading firm.