Has the online hype-machine run out of steam

Brian Tora: 'Private investors traditionally get sucked in at the top'

There were times when the technology conference in London at which I spoke this week, looked somewhat less than a good idea. Boo.com had turned belly-up, NASDAQ was nose-diving and Egg was looking iffy. My slot, "Is Technology the Only Game in Town", looked as though the words "to avoid" should have been added.

There were times when the technology conference in London at which I spoke this week, looked somewhat less than a good idea. Boo.com had turned belly-up, NASDAQ was nose-diving and Egg was looking iffy. My slot, "Is Technology the Only Game in Town", looked as though the words "to avoid" should have been added.

One thing you can say about technology is that it prompts comment. The recent gyrations serve to remind us forcibly that what goes up can come down. There can be little doubt that the technology shake out has been wealth damaging for some, even if many technology shares are still standing higher than a year ago. Indeed, while Baltimore Technologies could make an early exit from the FTSE 100 just three months after entering, its place is likely to be taken by another high tech stock - Bookham.

A dose of realism has been given to the market and in the end we will be the better for it. Hindsight is a wonderful thing and with it we now know that the flotation of Lastminute.com was a defining moment. Since then we have seen NASDAQ shed 40 per cent of its value, with many technology offerings falling twice as much. The list is growing of those companies which are forsaking a public flotation, perhaps because they have found investors have no stomach for paper that is at best hard to value and at worst simply a fuse that will burn until it runs out of money and then fizzle out.

To understand both the euphoria and the subsequent hangover you need to recognise that technology was comprehensively overlooked in this country until comparatively recently. A buoyant American market during the last quarter of 1999 prompted professional managers and private clients alike to pile in.

The realisation that a number of new economy stocks were set to join the Index in February led to a renewed burst of buying that drove shares way above reasonable value - in much the same way that the impending conversion of buildings societies into banks resulted in outrageous valuations for this sector, as managers sought to bring their portfolios in line with likely market weightings. Technology was given added impetus by the demand for specialist funds, some launched at levels which initial supporters will be lucky to see again for some time.

Private investors traditionally get sucked in at the top and it seems reasonable to expect investors to be less willing to pay fancy prices for technology shares in the future. Institutional investors, too, will have built their market weightings and may even need to lighten portfolios if, as seems likely, a number of stocks fall out of the Footsie. It is no wonder, therefore, that several proposed IPOs are on hold - perhaps even abandoned. The care with which the professional fund managers will value these companies in future will be considerable. A good idea and marketing hype will not be enough.

But the world has changed. Technology is touching us all and bargains have been created in this recent turmoil. While we can expect some companies to fade and die, there will be others able to deliver impressive profits and growth as industry and commerce adjust to new ways of doing business.

Investors these days need to take technology into account when assessing any share. This sector may have given us a tough time recently, but ignoring it in the future could prove to be just as costly.

Brian Tora is Chairman of the Greig Middleton Investment Strategy Committee