Internet stocks are making smart money look stupid.

Savvy investors, including hedge funds like Parker Quillen's Quilcap in New York, swallowed dynamite in the fourth quarter when they shorted Internet stocks -- a seemingly sound strategy in a nutty sector.

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Quillen, called a brilliant hedge-fund manager by four industry colleagues, was having a stellar 1998 with his Quilcap funds. One was up roughly 30% through the third quarter. But now some are expected to report fourth-quarter losses as well as 1998 losses because of the shorting of Internet stocks -- among them Amazon.com.

According to hedge-fund tracker Tremont Advisers, Quilcap's Little Wing fund took such a hit from Internet shorts that returns reversed, and the fund ended down 34% for the fourth quarter and 12% for the year. Tradewinds was down 11.44% for the year. A Quilcap representative confirmed the annual return figures and the fact that the funds had been up "substantially" earlier in the year.