The Unabridged History of Winners and Losers

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'Like a drug addiction' It's still the small investor's game.
Mar 13, 2000. SAN FRANCISCO (CBS.MW) FTMarketWatch.com.
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Thom Calandra's StockWatch
'Like a drug addiction'
It's still the small investor's game

By Thom Calandra, CBS MarketWatch
Last Update: 4:22 PM ET Mar 13, 2000 FTMarketWatch.com
Thom's biography

SAN FRANCISCO (CBS.MW) -- It's still a small investor's game, for good or bad. Even with the world's stock markets taking it on the chin Monday, it's still happy-hunting grounds for investors in the tiniest of companies.

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As one Wall Street analyst was brave enough to point out the other day: "Over-the-counter Bulletin Board volume has grown exponentially in recent months. We attribute the gains to the persistent influx of online traders and the widening of speculative fever." That was Internet brokerage analyst Greg Smith at Chase Hambrecht & Quist. Daily volumes for the high-flying bulletin-board stocks, which some folks call the penny-stock market, are running 1.1 billion shares a day vs. 323 million shares a day in 1999, Smith said in his report.

Folks, that's why small is big these days. Most Wall Street investment banks -- and many of the traditional financial publications -- are loath to tell you about the micro-cap stocks. That's because the big brokers and market makers don't make any money off companies whose shares trade for 50 cents apiece.

Smith, in his report, said total over-the-counter bulletin-board share volume is up 366 percent from a year ago. That's a robust market.

To be sure, the number of shares changing hands on Nasdaq's big board (no pun intended) averaged about 2.1 billion shares a day in the first week of March. That's a liquidity melt-up. An all-time high.

All of this is a sign of investors' desire for anything with a whiff of technology, big or small. Online traders -- the folks in black Reeboks and laptops -- have sent the Nasdaq Composite up about 24 percent since the beginning of the year vs. an 8 percent decline for the New York Stock Exchange Composite.

S&P Small Cap
My point is this: small is big. The gains notched by tiny U.S. companies' shares in the past 12 weeks have received little coverage on Wall Street. Or in the big financial journals. Only The Wall Street Journal, in its "Small Stock Focus," gives some attention to small companies. And even there, it's rarely the bulletin-board stocks that make the newspaper.

The investors who have benefited? Individuals who have no fiduciary responsibilities -- except to their spouses at night, after a long hard day of laptop trading -- are making money. Small stock indexes such as the Standard & Poor's 600 Index and the Russell 2000 Index clearly have beaten the pants off their larger cousins like the Dow Jones Industrial Average this year.

Some micro-cap indexes -- folks, we're talking about companies whose market capitalizations are less than $100 million in most cases -- have risen 400 percent from a year ago.

Thom in Tel Aviv
Aviv Boim of Orckit
Eilon Ganor of Vocaltech
Yair Shamir of
V CON
Calandra's report

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Some of these companies, having traded for mere pennies months ago, now trade for dollars. Some have graduated onto the Nasdaq Small-Cap Market. Others, after securing a new following among investors or completing a private placement, have migrated to the American Stock Exchange.

Is all this for good or bad?

"The dollar volume on the bulletin boards is still tiny, but it creates great profit opportunities," Smith told me Monday. "Some of these stocks have gone from pennies to hundreds of dollars a share in a year." The biggest gains have been in tiny wireless communications companies, biomedical developers and superconductor labs.

Smith in his report tried his best not to moralize about individual investors. "We believe the outsized returns of the past few years have given investors a psychological and financial cushion, which allows for the personal acceptance of higher and higher levels of risk," he wrote. "While we do not believe this activity is necessarily healthy (in fact it is quite analogous to a drug addict searching for higher highs), it is happening nonetheless and will probably continue to progress as long as the overall market remains relatively healthy."

Here's one case in point Monday (while the Nasdaq Composite shed as much as 200 points, or 4 percent of the 24 percentage points it had gained thus far this year): Advanced Viral Research (ADVR: news, msgs), a bulletin-board company, saw its shares rise 45 percent in the afternoon. One of the New York City-area company's experimental drugs is showing promise in the fight against viral infections, including HIV, which causes AIDS, and HPV, the papilloma virus that is spread by sexual contact. Not bad for a stock that has quintupled since early November.

Wireless Data
Another stock, Wireless Data Solutions (WDSO: news, msgs), held onto the heady gains this tiny company (market cap: $29 million) is making this year. The company's $2.80 bulletin-board stock was up 9 percent Monday. Since hitting a low in mid-October, Wireless Data Solutions' bulletin-board shares are up about 27-fold. The Minnesota company is developing digital technology that tracks trucks and other transportation fleets.

Another tiny stock, Winners Internet Network (WINR: news, msgs), was up 16 percent Monday afternoon. The Florida company, which owns stakes in European Internet service providers and is developing on-line transaction processing systems, will list its bulletin-board stock on Germany's Hamburg Stock Exchange. The Hamburg exchange will start spotlighting bulletin-board stocks. Winners Internet Network shares are up about 11-fold since early December.

Small is big, even in a rocky market.

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Thom Calandra is CBS MarketWatch's editor-in-chief. Thom appears regularly on "CBS MarketWatch Weekend," which airs weekly on CBS television.