No place for panic on the helter-skelter ride

The Microsoft mauling led to high-tech meltdown around the world, but the tidal wave of technology will continue for the foreseeable future

What is all that splashing I hear? Arms sticking out of the lake - are they waving or drowning? Aha, I realise now what it is, private investors who have suddenly realised that they cannot walk on water.

What is all that splashing I hear? Arms sticking out of the lake - are they waving or drowning? Aha, I realise now what it is, private investors who have suddenly realised that they cannot walk on water.

Reality has begun to seep into the frenetic world of technology and, despite my warnings that investors should curb their greed, a great many have hung on in the belief that they can defy gravity. (I suppose it is conceivable that there are investors who do not read this column, in which case they have an excuse, but regular disciples will not be forgiven.)

The Microsoft mauling by the American courts has caused high-tech meltdown around the world. But even before that news hit the markets the British high flyers, like Icarus, had their price wings scorched. By midweek Baltimore was 50 per cent off its recent high; ARM Holdings 46 per cent down; CMG 40 per cent down; Durlacher 59 per cent down; Kewill 53 per cent down; GEO Interactive 62 per cent down; QXL 58 per cent down; Thus 52 per cent down. How the mighty have fallen.

At the risk of repeating myself, this price collapse is not a bubble bursting because that would imply high-tech shares were merely a lot of hot air. On the contrary, these are good companies at the cutting edge of a unique revolution in communications. Fortunes are being made, and will continue to be made, by those who bring the best products to the market and those who invest in them.

We are experiencing a correction not a crash and the companies mentioned above, while they may not quickly return to the price heights of a couple of months ago, will continue to impress at a more realistic level. Indeed I believe that, as so often happens, there may well be an over-correction taking place and there could be a bounce back for some of these shares.

So the tidal wave of technology will continue for the foreseeable future and the investor must learn what is perhaps the most important lesson of successful investing: Don't panic. It will be a helter-skelter ride where such traditional failsafes as a stop-loss policy have no place. Prices of these fashionable stocks move so dramatically that operating a tight stop-loss would mean buying and selling several times a day.

We are learning that every tidal wave eventually recedes leaving calm seas. The real danger however is that such waves bring with them a load of flotsam that nobody wants.

So here are a few more pointers for those of you who want to put a proportion of your portfolio into technology and communications shares.

Be prepared for wild price swings and give up trying to apply a stop-loss policy.

Don't be a lemming (those little chaps who jump over the cliff just because their mates are doing it). Shareholder sentiment pushes prices up but has little or nothing to do with company efficacy and profitability. When sentiment wanes and prices return to realistic levels it is seen as a crash.

Look at who's-selling-what-to-whom. The Americans are a couple of years ahead of us when it comes to technology markets and their experience is that internet sites trying to sell to consumers are the most vulnerable.

Consider business-to-business internet companies. Efficiency innovations that save time and costs are the lifeblood of business. When considering a particular share try to make contact with a potential customer of the company concerned. Get a sharp-end opinion of the product.

In technology the safest bets are the companies that make the bits or control the airwaves. The real boom is in the demand for their products and services. But before you buy check that the share price is not already inflated - for instance, you would be feeling very sore this week if you had bought ARM at its peak a month ago.

Look for companies that are already established, probably in a traditional business, and are looking to the internet as a way of developing their existing structure. This will indicate that they are conversant with their market.

Get hold of the latest annual report (or prospectus for a newish company) and read the CVs of those involved. No doubt there will be an abundance of boffins but are there people at the top who have real business experience?

Remember, these are risk stocks so use your own money, funds you can afford to lose if the unthinkable happens.

Learn from this week's lesson. Don't be greedy, watch your investments carefully and when you think they are in danger of being over-cooked, even if they are still rising, turn paper profits into real money and be satisfied.

The shenanigans of the lastminute.com issue are well chronicled and I do not intend to repeat them in detail, but they typify the appalling mess that the latest craze for new issues has created. Investor fury at an allocation system that satisfied absolutely no-one, a meagre supply of private investor shares, a last-minute hike in the offer price, cheques being sent to the wrong people then cancelled, unacceptable delays in sending share certificates and repaying rejected funds...it is a sorry, sorry tale.

The debacle highlights the unsatisfactory system of bringing companies to the market as far as the private investor is concerned. We are treated like second class citizens - last on the list of those to be considered, not privy to the same information as the institutions, unable to participate in the "grey" market because our share certificates have not arrived, made to wait weeks for the return of our funds when demand has exceeded supply.

The present new issues method is a Fred Karno way of doing business that is an embarrassment for the companies, the registrars, the brokers, the institutions, the stock market and the investors. I don't pretend to know the solution but for credibility's sake it is important that these interested parties sit down and sort out some new rules.

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