By JOHN SPIERS 01/02/2000
There doesn’t seem to be a single person left who hasn’t realised that technology is going to have a big impact on all of our lives in the future and doesn’t know someone who has made serious money of late from sharedealing. The result has been a complete change of investor sentiment from the fear of losing money to greed to share in the bonanza. We have seen a surge in share prices which is quite unprecedented in my lifetime, particularly in stocks with little or no actual revenue at present. Brian Ashford-Russell, the respected manager of Henderson Technology, recently commented that in these markets it was much easier to make money if you had little or no experience of investment.
For those of us who have been in the investment world for more than 25 years the current situation can only be regarded as an enormous bubble. That is not to say that the basic theme of rapid technological evolution is unfounded. Merely that current market valuations pay scant attention to the huge risks involved in the early stage companies.
Some interesting research by Mary Meeker of Morgan Stanley - regarded by many as the doyenne of Internet analysts - supports the view that investors are not taking acount of the likely failure of most of these companies. Since Apple was floated in the US 20 years ago there have been about 1,000 public offerings by companies involved in personal computers. Only 50 of these account for 85% of the wealth created and six (Microsoft, Cisco, Oracle, Dell, Compaq and Dell) account for the bulk of this. It’s always been right to buy these stocks, even on apparently scary ratings, but if you backed the other 994 companies you would have been severely disappointed. In the US a similar pattern is now appearing with Internet companies. Of the 300 Internet companies that have floated since Netscape went public only 30% now trade above their issue price! 6% account for 80% of the wealth created. So the message is crystal clear - to make money from these stocks you need to be a genius of a stock-picker.
am not saying that investors should now sell their holdings in technology funds. Nor am I saying that those investing on a regular basis should stop their payments. What I am saying is that there is no easy money to be made and the road ahead will be bumpy. At some point technology stocks will fall by the order of 50%, perhaps in a day. We cannot predict when that might be and before it happens stocks might have doubled. The important thing will be not to panic out when the correction finally occurs. If you don’t have the stomach for this kind of roller-coaster then get out now while the going is still good.