My Family is made up of Accountants, Brokers and Bankers. Needless to say, they are not `technology savvy'-they wouldn't know a heatsink from a hard drive. ("do I have to double click that to make it work?"). Over the course of the recent Holiday, I was asked (on several different occasions) to explain Internet Stocks: the reasons these companies are valued at billions of dollars, before they make any money.

I realized that there are many of you out there in the same position as I am; the only techie at Grandma's Sunday Dinner table. It also seems likely that many of you have been put on trial about technology and the Market by `meatspace' family and friends, as I have. So I have collected my thoughts on the subject, and will be posting them here to help you deal with the Interrogation that is a conversation with your family about CyberStocks.

This Article will serve as an introduction to The Stock Market, some important terminology, and relevant history. The Second Article in the series will detail the `Cyber Valuation' and the explosion of Internet Companies. The Third and last article in the series will take a look at Y2k, and potential problems.

So lets get rolling:

Records of American Stock Markets date back over one hundred years. When you look back at the growth of those markets, you see two major trends, called Bulls and Bears. A Bull is a very large, strong and explosive animal. A Bull market is characterized by a sustained expansion of the market, and increase in stock prices. A Bear is also a powerful animal, but unlike the Bull, a Bear has sharp claws that can draw blood. A Bear market is characterized by sustained contraction of the market, and drop in stock prices. Here is a look at the Dow Jones Industrial Average(abbreviated to `DJIA'), over the last hundred years: (see if you can spot Bulls and Bears)

Between 1919 and September 1929, the Dow Jones was a fantastic Bull. The value of the DJIA went from less than 100 to nearly 400. Fortunes were made, times were good. But the bubble burst in October of 1929, with the most dramatic market crash ever. This Bear took two full years to completely show itself, and at its' worst in 1932, the Dow was worth 40.50-a mere 13% of the value it had at its' peak in 1929. What that means is, if you held a stock that paid dividends in cash in September of 1929, it took in the neighbourhood of 25 years before that stock returned to the value you had originally invested.

There are two traditional indicators of the value of a particular stock. They are:

1. Price to Earnings Ratio: Take the current market price of the stock in question and divide that by its annual per share earnings.
2. Dividend Yield: The amount distributed out of a company's profits to its shareholders in proportion to the number of shares they hold. The amount paid will fluctuate with the company's profits. (a company is under no legal obligation to pay preferred or common dividends.)

These traditional measures tell us that a stock is overvalued if it:

• Trades at more than 15 times earnings for no less than one year (look at the p/e ratio)
• Pays out dividends less than 3% of its current share price.

Here are some great sources of information on the Markets:

In tomorrows' article, we'll take a look at Internet Stocks, how they stand up under `traditional measures', and why they are valued so very high. Look for the second article to be posted tomorrow afternoon.

The fastest way to learn more is to talk about it. Check out the PCstats Bulletin Board System for more info.