Fed Chairman Cautions Net Investors

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There's no point in telling gamblers they're investing irrationally. Fed chairman Alan Greenspan on Thursday compared Internet stocks to lottery tickets -- while "the vast majority of Internet companies are almost sure to fail," a handful will succeed beyond expectation. Greenspan's cautious comments before the Senate Budget Committee did nothing to stem investor enthusiasm in the sector, buoyed on Thursday by Yahoo's GeoCities acquisition.

"Investing in the Internet is like a giant crapshoot," says TIME business correspondent Daniel Kadlec. "Many of these stocks won't make any money, although at this stage we don't know which ones. But a stock price doesn't move 50 or 60 points in a day unless it's being driven by an irrational logic." Greenspan was more upbeat about the "hype and craziness," arguing that it signaled the vitality of an investment community looking for new opportunities. Kadlec's advice? "The only sane way to invest in the Internet is through a diverse portfolio or a mutual fund." In other words, ladies and gentlemen, hedge your bets.