FUNDS
Last year, savvy investors looking for a safer ride on the Internet roller coaster flocked to The Internet Fund, a tiny New York-based mutual fund. During 1998, manager Ryan Jacob saw the fund's assets grow from less than $200,000 to more than $13 million. Nearly all that fresh money came from new investors, attracted by Jacob's stellar – albeit clearly unsustainable – 1998 return: 150 percent through the end of November.
Other money managers, attempting to determine the "true value" of Net stocks, put what little financial Internet data exists through increasingly elaborate contortions. Jacob relies on more traditional methods: The 29-year-old former Wall Street analyst estimates a company's likely growth rate, years to profitability, and profit margins. Then he discounts future earnings – more risk equals a bigger discount – and applies what he deems a reasonable price-earnings ratio. It's actually pretty standard Wall Street alchemy; the trick is determining relatively accurate estimates.
Jacob admits that his estimates – for both revenues and profitability – are "significantly higher" than standard Wall Street estimates. But he claims that most Internet companies purposely coax the Street's expectations down. "Those estimates are about as hard to hit as a street curb," Jacob cracks.
Jacob concedes that moving into last December, many pure ecommerce players were "a bit overvalued, even by our forecasts." But according to his models, some Internet companies remain attractive – especially those that are already proving profitable.
The Internet Fund top five holdings (12/3/98)
COMPANY PERCENTAGE HOLDING
| Yahoo! | 5.1 %
| CMGI | 5.0%
| GeoCities | 4.7%
| Excite | 4.6%
| DoubleClick | 4.4%
The Internet Fund: www.theinternetfund.com.
| NEW MONEY
| Finding Financial Dirt Online
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| Nothing But Net
