When Chris Agarwal turned 21 and wanted to invest in the stock market, he contacted some local stockbrokers, seeking help in picking winners in an area he was familiar with: high-tech.
“Unfortunately, these folks weren’t familiar with the Internet,” Agarwal said. “When I told them some of the companies I wanted to invest in, they said they didn’t know about those, and suggested I invest in something they knew about, something like Starbucks.”
Agarwal had a hunch the Internet was a better play.
As a way to educate himself and connect with others interested in the high-tech sector, he started an online newsletter devoted to the subject.
Soon, the newsletter launched as a hobby grew into a full-scale Web site, Internet Stock News (www.netstocks.com).
Two years later, at the ripe old age of 23, Agarwal heads up a fledging business of 10 full-time employees, operating from a tony address in the University Towne Centre area.
While there are investing sites similar to ISN, Argarwal said his Web site is the only one devoted exclusively to Internet investing. Besides the features contained on many other sites , real-time stock quotes, charts, message boards, chat rooms, stock analysis , the site also provides users with the ability to access some initial public offerings, which enables small-time investors to get a crack at new issues.
It was one of the big gripes Agarwal and many other smaller investors had concerning IPOs. Unless you’re wealthy or a longtime investor with a broker who has commitments to a particular IPO, purchasing such shares is virtually impossible, he said.
Since ISN launched in mid-1998, it has helped raise $15 million for four companies, Agarwal said.
In helping smaller firms with their IPOs, Internet Stock News usually gets a small percentage of the new shares along with consulting fees, he said.
Because of this business, ISN can claim something else few Internet-related companies have: a profit. Gains on the sale of shares obtained via the IPO promotions helped IP Equity, the holding company for ISN, post a net profit of $3.6 million.
The company’s other main revenue source, like many other Internet firms, is advertising.
Interviewed just days between the two biggest one-day drops in the Nasdaq stock index, Agarwal sounded neither excited nor anxious.
Yes, Nasdaq has been battered of late, but it’s a correction that had been expected for weeks. It presents an excellent buying opportunity for investors, he said.
“This is great for our site because we are following the market on a minute-to-minute basis.”
In fact, had visitors to ISN taken heed of the advice of some of its analysts, they would have realized the current shake-out was coming and could have taken advantage of it, he said.
A tall, lanky man of east Indian heritage, Agarwal could be a 21st-century Horatio Alger. Born in Philadelphia, he was an orphan by the age of 13. He lost his mother when he was 11, then two years later, his father died. Agarwal said he preferred not to talk about the circumstances.
He lived for short stints with several relatives, but “basically, I grew up by myself,” he said.
By the time he reached 10th grade, Agarwal was enrolled at the Hun School, a boarding school near Princeton University in New Jersey. At the prep school, he continued learning as much as he could about computers through classroom work and playing video games.
“Technology has always interested me, whether it was remote control cars, video games or computers,” he said.
After graduating, he decided to relocate to San Diego to enroll at UCSD. Part of the motivation was simply finding a warmer and more hospitable environment.
“In my senior year, we had 12 straight snow days, and that was just ridiculous,” he said.
While attending college, Agarwal also worked at summer jobs involving computer networks. That experience plus his growing fascination with the Internet steered him toward thinking of investing in Internet companies when he took control of what he called a “small” inheritance of $80,000.
Providing A Service
After researching and learning more about investing in general, Agarwal realized that there was a dearth of data on many of the companies that caught his fancy.
Instead of bemoaning that fact, he started his Internet-based newsletter focused on technology stocks. The process struck a chord with thousands of investors also looking for an edge in picking stocks in the burgeoning Internet field.
Within a few months, the newsletter had about 3,000 subscribers. Just about that time, the Internet wave began cresting, with companies like Yahoo! and eBay making headlines.
“As the Internet stocks took off, we were right on the money with a lot of picks,” he said.
For example, one of Agarwal’s picks was CMGI, a company that owns and invests in other Internet firms. ISN touted it when it was trading in the $8 range. Since then, it’s split several times and had been trading above $135 earlier this year before dropping to about $70 last week.
Agarwal will be the first say when investing in Internet or most high-tech stocks, the buyer must beware. The market can and usually does fluctuate with quantum leaps, both up and down.
“I tell people to stick to the brand names, the companies that have been around for awhile, and have shown they are winners companies like Yahoo, AOL and CMGI.”
Agarwal said he only put about half his stake into technology-based equities. The rest was invested in blue-chip stocks, he said.
Since its launch in 1998, the newsletter that grew to 100,000 subscribers is now a Web site that Agarwal said has 500,000 separate users monthly. Yet, according to PC Data Inc., a Reston, Va., online research company, ISN captured 95,000 unique users in March.
Ted Kunzog, ISN’s chief financial officer, disputes the figure, saying the company tracks that it has well above 500,000 unique users. A traffic survey done by the firm found its site received more than 4 million hits in March, had more than 400,000 E-mail subscribers, and 120,000 registered users.
David Allen, director of research for Granite Financial Group in San Diego, said though he was unaware of ISN, Internet information companies are up against some stiff competition.
“There are so many of these specialized service companies (on the Internet) it’s hard to keep up with them,” he said. “They are up against some fairly tough competition, so they have to offer an extra wrinkle, and their wrinkle seems to be doing the IPOs.”
Bongsik Shin, an SDSU professor who teaches courses in E-commerce, said the problem with many of the dot-com start-ups is they rely on advertisements to make money, and without a large user base, cannot charge much for the service.
“Pure dot-com businesses are facing an uphill battle with traditional retailers,” Shin said. “You know, Wal-Mart isn’t on the Internet but once they jump into this business, look out.”
Kunzog and Agarwal say their business model not only features a distinctive niche in providing a platform for IPO activity, but has demonstrated it can attract a loyal and well-heeled user base.
According to a survey the company did last month, 57 percent of ISN’s users had a net worth of more than $100,000, and 26 percent earned more than $100,000 last year.
“We are extremely focused, the only site that’s focused exclusively on Internet stocks, which we believe is the highest growth area of the stock market,” Kunzog said.
“The Internet is growing far faster, and has gained in acceptance much faster than any other new invention, more than the telephone, the telegraph, television, even more than print.”