The Ignorant Investor

Anyone who missed out on the heyday of the dot com boom of the late 1990s can catch the replay by following the performance of Bidu.com, an internet search engine that apparently is big in the Chinese market. The IPO price was $27, but after only a few hours of trading on the open market on Friday the stock was running above $150. It's fallen significantly over the past couple of days, trading now in the $100 range, so it's worth asking whether it's a good buy at the current price.

The frenzied trading is understandable. Google's ability to turn its dominent position as a search engine into a cash cow by creating a new market in search advertising- to draw huge profits out of an internet that has left so many investors in tears- stunned people like me some months ago. Back in 1999, I bought into Hewlett-Packard on my broker's advice and can still remember the almost physical euphoria of watching it shoot upwards day after day (my current grim, Calvinist distrust of share prices that shoot upwards with effortless rapidity came only later, after the stock's price fell by 80% along with most of the other companies that suffered when the tech boom went bust). Google was a tech company that seemed to deliver on what it had promised. Big profits now. Not promises of future growth, but real live cash in hand. So people went gaga over google.

So now along comes Bidu.com with its strong position in the Chinese market. People can't look at the stock without thinking of that verticle rise in Google's price. There's a kind of mania that takes over at a time like this. You see a country that's teeming with a billion people, you look at the popularity of the internet works here, and you think about half a billion Chinese men just waiting to type in searches like "pictures+American+girls+lesbians". Who can resist owning the next Google?

I'm sure sympathetic to this argument, but look at the negatives involved: At $100 a share, the stock is running about four times what the company's own management and bankers thought the stock was worth only a week or so ago. And there's no guarantee that Bidu.com will dominate the Chinese market the way Google dominates this one. Google itself just might turn out to be the Chinese google with the addition of a couple of Chinese programmers and a sales office in Hong Kong. Further, there's a good chance that Google is itself overvalued. The internet advertising market is new, after all, and its potential for growth may be wildly overestimated.

Yes, I too cannot help but think about all those Chinese men searching for all those pictures of lesbians. Or amateur guides to all the episodes of Star Trek. Or chat rooms on whatever reality shows Chinese people like. If I had to be honest here, I'd say that the only reason I didn't buy into Bidu.com at $150 a share last Friday is because I happened to be on vacation, and the only reason I'm not buying in right now is because it fell from $150 to $100 in a couple of days, which is too much volatility for me. Whatever value is in a share of Bidu, and there may be a lot of it, it's probably not worth a hundred bucks. At least for now I'm going to pass on this one.

Perhaps in a few months we'll have another search engine IPO. Something in India, maybe. I hear they like Star Trek, too.