Markets and Stocks

["Robert G. Brown" <bob@xxxxxxx>]

The VALinux IPO is a good case study of what's happening these days. I will
agree that it is "not worth" 239, nor is Red Hat worth 286. Matt's answer is
true (if they'll pay 239 for it, that's the price), but simplistic, in that 
sooner or later SOMETHING has to support that price in the minds of share-
holders (growth, performance, dividends). Inflated stock price alone does not
hold up over the long haul. If company management cannot take advantage of
the funding provided by the market, that money will go somewhere else, and
we'll see it in the collapse of the stock price.

Is this a self-fulfilliing prophecy? Over the short term, yes. The market is
giving Linux a chance, big time. If this chance is blown, that money will go
away as fast (maybe faster) than it arrived. This is the nature of the invest-
ment markets. The chance will not be back any time soon.

There are several kinds of investment strategies. The approach that explains 
the most (in the case of VALinux, Red Hat, and some "Internet Stocks") is that
the investors who got in early are willing to accept a real time lag before 
they start to see real return (not high stock prices, but dividends) on their 
investment. The short term high stock price exists mostly because not enough
stock has been made public to satisfy demand for it, so the stock is bid up
until the original buyers want to part with it.

It has been said that most of the purchasers don't know what they are buying,
or that this is a "vote of confidence" in Linux. At least one of these is a
false statement! How can you "not know" about something, yet still give it a
"vote of confidence"?  The answer is (as usual) more complex than the sound-
bite answer. Overall, the market has proven itself a very efficient distri-
butor of captial to meet the needs of people who are building companies, and
if they can't hack it, the market will move the capital elsewhere. 

                                                            ---> RGB <---