March 23, 2010 - Back in the late 90's all you had to do was put a ".com" after your official name, and you were golden. Investors bought your stock with a frenzy, never mind the details. It was the fact that the company was on the Internet, that's what mattered. Basic stock analysis? Forget about it. Didn't need it. The company was on the Web. That's all that mattered.

Eventually reality came back to bite. The eyeballs were still there, but profits didn't come, not for most sites. Some of them spent their way into oblivion with Superbowl ads or other large marketing programs. But it didn't matter if the content on the site wasn't valuable enough. Over several years, many very high profile sites simply went dark because viewers weren't willing to support the advertising the sites used for revenues. Many of them tried subscriptions to stay alive, but Web users want everything free unless there's something so compelling, so unique, so wonderful, that they are willing to pay for the content. The Wall Street Journal comes to mind as a site that actually got people to pay, but it's a rare example.

In the end, it was the content that drove the eyeballs. If it were good enough and unique, people kept coming back. Advertising did better on those sites. Other business models also worked such as email blasts. But without the content, sites disappeared.

However, for investors, the caution comes in the information. How does an investor know enough about a company to make a valid investment decision? It's very hard. While stocks that trade on the NYSE are required to file with the SEC and have accounting that is standardized, most Chinese stocks don't trade here. They're in China and getting good data on them is tough. They're not required to cater to U.S. investors. And most information an investor does get is usually at least 6 months old, if not more. So the first difficulty for U.S. investors is getting timely information or any information.

The second is actually buying Chinese stocks. Most of them require that they be bought on a Chinese exchange which means investors need to have a Chinese account or do business with a broker who has access to the Chinese markets. Most don't.

As for the possibility of a bubble, like the dot coms had, it's not so clear cut. The Chinese economic expansion is real. It will continue because this is a country that is just starting to taste the fruits of capitalism. The Chinese like the flavors and want more. However, like every other growth country, there will be cycles to the expansion. The government is controlling this economy the best it can, keeping close watch on inflationary signs. It's not going to let prices run rampant. That's what starts riots.

So there is a big difference between the China boom and the dot com bubble. China is real. The buying power is real. There are huge markets still waiting to be tapped, others to be correctly served. There will be fortunes made in China over many years. But be wary of simply jumping on a hot tip because it has China in the name. Not all the China related companies will be winners. And even the strong stocks will feel the downward part of any economic cycle.

- Ted Allrich