We wanted to take a moment and discuss Palm, Inc. with you. Palm as many of you know is the leading provider of handheld computing devices. They create these marvelous little technological marvels, we call Palm III, Palm V, and Palm VII.

What we are curious about is the stock action. Palm went public a week or two ago at the price of $38 per share. It opened up at $140 and then promptly peaked at $ 165 per share, the same day. It closed at $95 1/16 however.

Now let’s examine this for a moment. By the way the next day of trading, it closed at $80 1/4. Do you see the implications of this? We venture to say that no one made money on this wonderful, dramatic move except the people who owned it on the IPO. Did we say people? We meant institutions. You see the investment banks give the stock to the institutions in exchange for very substantial commission business. How substantial you say. Well substantial enough to impact the bottom line of major firms.

Think about it, if we just put a $ 100,000 profit, or a $ 500,000 profit in your account, wouldn’t you pay us back with very substantial business of some kind. Ameritrade is not giving you Palm as a new issue. If you think that’s possible, there’s a wonderful bridge in Brooklyn you should consider buying.

Let’s go deeper. If you bought Palm anywhere in the aftermarket because you thought it was going higher, you blew it. The stock got terribly hurt in after market trading. You lost a very substantial amount of money, which you may not see again. What is more significant is that anybody looking at the high and low of this stock a year from now would say, “Oh what a great move, she tripled or quadrupled in the aftermarket. Non-sense, it was a one day move. You either had it or your didn’t. Most likely, you didn’t.

This is where statistics can be very deceptive. We have looked at charts that absolutely demonstrate that the vast bulk of Internet stocks do something very unusual after going public. If you look at their price on the second day of trading and go out a year, you know what happens. Their performance is no better than the S & P 500. We were very surprised to learn this. It means you better own them on the IPO.

At some point you had better get out also. Something greater than 90 percent of these Internet related companies will not exist in a few years. We did not say they would be cheap. We said they would not exist. They are destined to go the way the computer leasing companies of the 1960’s went. They will be like the conglomerates in the late 60’s and early 70’s. It’s just the reality that we will all have to deal with.

Perhaps the only smart one in the group is AOL. Its merger with Time Warner will insure its existence long after the nature of the Internet changes. This is the same thing Leasco Data Processing pulled off in the sixties when Saul Steinberg ran it. With a price earnings ratio in the stratosphere, Steinberg went out and bought Reliance Insurance. Within a few years the computer leasing business literally disappeared. But insurance was always there,and Reliance has survived intact for another 30 years.

AOL will survive because it will have Time Warner. We should say that Time Warner will survive. Or is it Steve Case that will survive because he will be the dominant one in this relationship.

In the end a business is a business. You have to have a good idea, and be well capitalized. Smart management helps, and you have to execute. Oh, there is one more thing, and the current technology wave will be no exception. YOU HAVE TO BE PROFITABLE TO SURVIVE. The question is, when will this suddenly hit people. One of these days it will hit them; like a ton of bricks.

When the change comes, or should we say avalanche, it will be huge. The doors will not open far enough for people to get out.
Always remember that the stock market is not a ZERO SUM GAME. A zero sum game is when, if you make $ 10, someone has to lose $ 10. Whatever is made, is also lost. This is what commodities is all about. Not the stock market. The stock market is different.

Look at Procter and Gamble. It is one of the magnificent companies of the last 30 years. They missed their earnings, and the stock loses market value. What no one picked up on, and we mean no one is that it lost $ 30 billion without a single share trading. This is important. It shut down trading and then re-opened $ 30 billion less in capitalization. Only then did they trade 60 plus million shares in the remainder of the day.

The volume was the institutions by the way, getting out so they would not have to explain to the Boards they report to why they owned it. It gets buried in the percentage up and down for the quarter. As long as they don’t own it at quarter end, they don’t have to show the name to the investors they report to. These are the secrets of Wall Street. Will it help you make money in the market, you bet it will.

Within 12 months of buying and selling our positions, you should be up big. Most of our picks should double and you can sleep at night owning them.These companies will be here 10, 20 ,30 years from now. Is Procter and Gamble a buy? Not quite, but it is getting there. And when it does get there, it will be a once in a decade buying opportunity to own this magnificent company that has gone from $ 1 billion in sales in 1980 to $ 40 billion this year. No Internet Company on the planet will do that.