Online's golden years

John Willcock: 'We may look back on last autumn's internet share mania as a golden period'

The time it takes for the economy to go from the beginning of a boom to the end of a bust takes years. The internet phenomenon seems to have compressed an entire economic cycle into just a few months.

The time it takes for the economy to go from the beginning of a boom to the end of a bust takes years. The internet phenomenon seems to have compressed an entire economic cycle into just a few months.

The collapse of boo.com this week has had the techno-sceptics out in force. Yet just months ago private investors were piling into dot.com floats, which were seen as virtual one-way bets.

You might take some comfort from the fact that boo.com, which aimed to become the first truly global online fashion retailer, hasn't actually floated yet. The only investors to get burned were the original backers - investment bank Goldman Sachs, Bernard Arnualt, head of the French luxury goods group LVMH, and the Bennetton family. None of them short of a few bob.

But what are UK private investors to make of the fall of boo.com? We've already seen a sell-off in the hi-tech market. Does this mean there is even worse to come? Some commentators think so. Michael Whitaker, chief executive of internet incubator NewMedia Spark, says that more than 70 per cent of current internet-related companies will go out of business within two years.

If even a fraction of those businesses goes down, that's a sizeable shakeout. Should investors feel hard-done-by? Were they taken in by fast-talking sales staff and a complacent press?

In a word, no. This is what investing in risk capital is all about. The risks for start-ups will always be high, let alone for hi-tech ones. Without wishing to see further business failures, if any good is to come out of the recent market gyrations and the boo.com saga, it is a return to reality.

Investing in shares should ideally be for a minimum of five years. People should make sure they can afford to lose their entire investment before they approach the stock market. In the long term, shares are by far the best investment you can make, particularly through a broad portfolio of shares.

But trying to make a killing on a short-term rise in a single Net start-up is little more than gambling. And most people I know who frequent race courses usually end the day short of a few notes.

But investing in Net floats and holding for the long term seems like a reasonable strategy. It's down to you as an investor to work out which will be the winners and losers. Speaking of which, a lot of investor interest has been stirred up by the Pru's decision to float its online bank, egg. There has also been some anger that you can only apply for shares in egg via the internet.

This restriction seems reasonable. Egg is an internet bank, after all. And the Pru's decision is part of an attempt to ration application numbers, following the botched float of lastminute.com. The latter float was so over-subscribed that many investors failed to get the shares they wanted, and then had to wait to get their money back. The Pru's decision may forestall such a debacle.

I am far less happy about the continuing lack of information about the proposed merger of the London Stock Exchange and the Deutsche Borse. This week we heard that companies might not have to list in euros after all. We still don't know whether a merger would make it more expensive for private investors to buy and sell shares, or less expensive.

Many UK brokers may want the deal renegotiated, so that London can keep a technology market instead of the whole hi-tech start-up market being shifted to Frankfurt.

I would be astonished if the Germans would agree to any concessions on that point at this stage. So the deal may unravel after all. If not, we may look back on last autumn's internet share mania as a golden age when you could still invest in hi-tech shares in London.

John Willcock is Personal Finance Editor of The Independent

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