What Mary Meeker, Henry Blodget, and Internet stocks generally need is a solid floor price on which they can grow.
What they need is a Mr. Potter. You remember Mr. Potter, don’t you? From Frank Capra’s “It’s a Wonderful Life“? He saved the bank and offered to save the Bailey Building and Loan. He was paying 50 cents on the dollar – cash.
I know his character was the villain of the movie, but look again. When everyone else was panicked and selling, Mr. Potter was buying, picking up some bargains. Sure enough, the run on the bank ended, and, in time, things went back to normal.
The Potter character is based loosely on that of J.P. Morgan, the 19th-century financial plutocrat. Morgan saved the U.S. economy from ruin twice. In 1895 he acquired more than $65 million in gold for the U.S. Treasury, then lent it through a bond at 4 percent interest. In 1907 he bullied New York banks into standing firm and halted a second financial panic.
Morgan didn’t act out of charity, which is why he was so effective. He gave other businessmen confidence that their risks would be rewarded, thus giving confidence to the entire market.
Blodget, the pied piper of the Internet market’s rise, is no J.P. Morgan. In fact, this week he lowered his rating on several beaten-up stocks, essentially throwing in the towel on them.
Netscape founder Jim Clark pretended to play the role in April, when he said he would buy lots of Healtheon WebMD. But on Sunday, New York Times writer Gretchen Morgenson reported that he hasn’t been following through on his promised buys. Clark and the company blamed regulators, but a true Morgan doesn’t listen to no “steenkin” regulators.
Paul Allen is a better candidate for the role. He joined Liberty Media in buying rights to $190 million in Priceline last week at its present price of $23.75 per share. The rights run through August 2002. This is the same Paul Allen who in June filed to sell $79.4 million in Priceline shares at a time the stock was hovering at around $10.
Notice what Allen did here. He pushed the price down then negotiated an option to buy a ton of the same stock at its present price. Mr. Potter would be pleased with that one.
Remember what it takes to play the role of Mr. Potter. It takes ready capital, an appetite for risk, and ruthlessness. It also helps if you’re willing to play the villain. Without someone to be against, many investors have no idea what they’re for.