Shooting Up, Coming Down.

• Author: Millman, Gregory
• Position: Proxicom Inc.

Day traders, who may buy and sell shares without even knowing what a company does, can cause huge fluctuations in stock price. Proxicom's CFO takes a hands-on approach to managing this volatility.

If it had been a fairy tale, Proxicom's story could have ended nicely with the company's IPO in April 1999. Five million shares offered at $13 were trading at $55 only six months later. Clearly, the market loved this stock.

So did the day traders, though. And that's where the happy ending got complicated.

Founded in 1991 to market Next Computers - the marvel machines that kept Steve Jobs occupied during his temporary exile from Apple - Proxicom had shifted its focus to the Internet by 1994 and rode to glory on the e-commerce wave, winning awards and big name clients. What's more, though Internet companies generally print their annual reports with more red ink than the Communist Manifesto, Proxicom which provides e-commerce solutions to large, multinational companies - has achieved the rare distinction of consistent profitability.

The evolution of e-commerce has been so rapid, even experts can't be 100-percent sure where it's going. So Ken Tarpey, Proxicom's CFO, ranks shareholder relations and investor information among his top priorities. He considers them so important, he'll personally field calls from individual investors.

Most such calls come from people who've already done a fair amount of research on Proxicom and want to clarify a point or two. But day traders aren't like other investors.

"One day trader called and said, 'Hello, I just bought your stock and by the way, what do you do?'" Tarpey recalls. "Another said, 'I just bought your stock, do you have any significant press releases coming out today?'"

Comical, until you consider that at times the day traders were the main driver behind Proxicom's stock price moves. Buying and selling into momentum, they can accelerate moves in either direction as they pile on to catch the wave. From an economic perspective, this makes for a more efficient market (see box on page 22). But from a managerial perspective, it's a challenge. "Erratic jumps up and down do cause distractions, to say the least, for employees," says Tarpey. "Shooting up is euphoric. But coming down is distressing."

Welcome to the brave, new, disintermediated world of the electronic marketplace. It's a world CFOs will have to become better acquainted with, and not just for their personal financial-management decisions. Technology...