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WHERE THE BIG BOYS FEAR TO TREAD

Who's driving Internet stocks sky high? It's the small investors, according to traders and market watchers. ''With valuations going through the stratosphere, institutions have stepped aside and left a wide open playing field for retail investors,'' says Martin C. Cunningham, senior vice-president of trading for Charles Schwab Corp.'s Mayer & Schweitzer Inc. unit, one of the largest market makers in Net stocks.

Indeed, thousands of at-home investors are taking advantage of cheap online commissions and loads of information on the Internet about Internet stocks. Data compiled by Birinyi Associates Inc. show that small investors--those who make 100- and 200-share trades--are by far the most active traders in Net stocks (table). Just compare: The average trade in Yahoo! Inc. in November was 438 shares, less than one-tenth the 4,051-share average in America Online Inc., a far larger company, and one with an institutional following.

Concerned about the feeding frenzy, brokerage firms are raising margin requirements on Net stocks, demanding customers to put up more cash. Brokers stand to lose big if the stocks plunge and customers can't pay off their loans.

Institutions aren't completely ignoring Net stocks. In the first few hours of trading in Yahoo! on Dec. 1, a few large trades crossed the tape, including one of 200,000 shares and another of 29,500 shares. ''Some institutions have jumped in just to add a dash of spice to their portfolios, almost like they used to use derivatives to goose returns,'' says Kevin Landis, manager of four high-tech mutual funds run by Firsthand Funds.

Several mutual-fund managers say that they are avoiding high-priced Net companies because so few shares are available for trading that they can't accumulate stakes without driving prices even higher. But that doesn't mean the pros aren't interested. Says Landis: ''If prices were to fall say, 40%, these stocks would be a buy.''

By Geoffrey Smith in Boston



RELATED ITEMS

COVER STORY: AMAZON.COM: THE WILD WORLD OF E-COMMERCE
COVER IMAGE: Amazon.com: The Wild World of E-Commerce

TABLE: Amazon's Growing Universe

TABLE: Amazon's Amazing Valuation

TABLE: Stacking Up the Amazon Advantage

`TECHNOLOGY, TECHNOLOGY, TECHNOLOGY'

THE TORRENT OF ENERGY BEHIND AMAZON

RESUME: Jeffrey P. Bezos

INTERNET STOCKS: WHAT'S THEIR REAL WORTH?

TABLE: Valuing an Internet Stock

WHERE THE BIG BOYS FEAR TO TREAD

TABLE: Small Investors Drive the Net Stocks

ONLINE ORIGINAL: BARNES & NOBLE: A BETTER STOCK PLAY?


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