Jason Ramage serves as an advocate and inspiration for young folks (at any age) who should start investing now.

Are the "Hot" Stocks Really "Cool"? (con't)

When personal computers were just being developed, disk drives became a hot product and any company that made them was popular on Wall Street. While this new industry was exploding at a rate of 52% a year, there were also an exploding number of companies all scrambling to get in on the action. With thirty or more rivals, nobody made any money.

I liken this to all of the Web portals and PC makers that scramble for market share among the growing number of computer and Web users. Most Web-based Internet companies are lucky to make a profit at all. New competitors can pop up from just about anywhere because it doesn't take much to get the equipment and staff to operate a Web site. The Internet is the fastest growing market in the modern economy, and yet very few companies taking advantage of this new medium can even produce positive earnings. As soon as one person makes one idea popular, it seems hundreds of copycats appear and end up choking each other.

On the other hand, you will find thousands of excellent companies that are enjoying a high rate of profit growth while their industry grows in the single digits or even shrinks. Before lawsuits started giving tobacco companies a bad name, Philip Morris was growing rapidly while the market for tobacco products was shrinking. As long as Philip Morris could expand its share of the market, profits would grow because new competitors are almost sure not to show up in a shrinking industry.

So to sum this up, investors can find highly profitable investments outside of the spotlight that Wall Street casts on high-tech and Internet stocks. Sure, you won't see McDonald's or Wal-Mart jumping 20 points in a single day, but you can also be sure a powerful competitor is not going to show up tomorrow and cause trouble. And you can believe that your company is as solid as the CEO says it is.

Of course, avoiding technology altogether would be almost unreasonable. There are solid technology companies out there, like Diebold and EMC. Be sure to read up on the company before you buy the stock, however, because you might regret it later.

In retrospect, I think I shouldn't have bought Compaq. Of course, we all see 20/20 through the rear-view mirror! Again, there are countless PC makers out there, from the giant IBM to the efficient Dell-and from a new company called E-Machines that popped up out of the blue less than a year ago, and already claims a significant share of the PC market for the amateur PC builder.

I didn't give the competition enough credit while researching Compaq. For a while, things were all right after I bought at $26. It nearly made it to $50 before trouble came, the former CEO Eckard Pfeiffer was fired, and Compaq's stock took a hit. Today the stock is about $26 for a net gain of zilch!

Most investors classify themselves as long-term or short-term (day trade) investors. Some like to day trade with some of their money and buy safer long-term stocks with the rest. At Inve$tWare, we promote long-term investing. If you want to buy net stocks, look for those that have staying power, generate earnings, and seem to stand out from the crowd. These are the companies that will shape the future of the Internet.

As for me, I'll catch that train later. But if you must buy riskier net stocks, separate your "gamblin' money" from the rest; and buy safer companies (though that doesn't mean settling for slow profit growth) with the bulk of your money. If the stock market should crash and net stocks fall to earth -or at least re-enter the atmosphere-you will still have the high-quality companies that have stood strong through good times and bad to build on.