The mistaken methods of Internet investors

Those who scoffed at longstanding warnings about kamikaze Internet stock valuations and dove into cyberspace investing have endured only the first of many tests.

Alexander Cheung, manager of the Monument Internet Fund, points out four flubs commonly made by these investors.

The mistakes result from disregard for time-tested investment maxims, such as the need to invest for the long term and focus on solid management and industry leaders.

Mr. Cheung says Internet investors, to their detriment, tend to be:

1. Beguiled by the Net's "headline companies." They lunge for the flashy Internet retailer and portal companies while overlooking the broad range of quiet but better valued companies active across all areas of the sector.

2. Prone to "day trading," or rapid run-and-gun buying and selling of shares. "As institutional investors get more involved in the Internet and more companies go public, we will see the [Internet] market become more normalized, and skittish day traders will not be able to enjoy such a sudden jump in prices," says Cheung.

3. Attracted by momentum in the growth of revenue or other signs of good performance. Instead, investors should look for high quality management and companies that will lead their slice of the Internet sector.

4. Skeptical about the Internet's staying power, and therefore prone to short-term investing. "Many people believe the Internet is a flash in the pan," says Cheung. "But we believe the Internet will lead the world into the new millennium and create a new way to do business."