A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

HOW EVEN THE LEADING NEW ECONOMY
STOCKS RUINED INVESTORS
High
Low 2001–
Percentage

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Stock
2000
2002
Decline
Amazon.com
75.25
5.51
98.7
Cisco Systems
82.00
11.04
86.5
Corning
113.33
2.80
99.0
JDS Uniphase
297.34
2.24
99.5
Lucent
Technologies
74.93
1.36
98.3
Nortel Networks
143.62
.76
99.7
Priceline.com
165.00
1.80
99.4
Yahoo.com
238.00
8.02
96.4
PalmPilot, the maker of Personal Digital Assistants
(PDAs), is an example of the insanity that went well beyond
irrational exuberance. Palm was owned by a company called
3Com, which decided to spin it off to its shareholders. Since
PDAs were touted as a sine qua non of the digital revolution,
it was assumed that PalmPilot would be a particularly
exciting stock. Little did 3Com know how strongly the
market would react.

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In early 2000, 3Com sold 5 percent of its shares in Palm in
an initial public offering and announced its intention to spin
off all the remaining shares to the 3Com shareholders. Palm
took off so fast that its market capitalization became twice as
large as that of 3Com. It turned out that the market value of
the 95 percent of Palm owned by 3Com was almost $25
billion greater than the total market capitalization of 3Com
itself. It was as if all of 3Com’s other assets had been worth a
negative $25 billion. If you wanted to buy PalmPilot, you
could have bought 3Com and owned the rest of 3Com’s
business for minus $61 per share. In its mindless search for
riches, the market created anomalies that were even stranger
than the fraudulent accounting practices that were soon to be
revealed.