View from City Road: Management, not glamour

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The Independent Online
No offence intended, but you would have to be either naive or possessed of a very short memory to think the kind of first-day premiums achieved by stocks like Virtuality say anything at all about a company's prospects.

What they do reveal is that the City is as much a slave to fashion as any dedicated follower of haute couture. In the late 1980s niche retailers were the flavour of the moment - remember the late unlamented Sock Shop (53 times oversubscribed, first-day premium 165p compared with an offer price of 125p)? Or poor Laura Ashley - 34 times oversubscribed, first-day premium 59p?

Before October's storm brought an end to that long, hot Indian summer, extinguishing the great 1980s bull market in the process (spot the parallel?) there were similar flirtations with nascent property stocks and the service sector.

The current boomlet may not be nearly as frothy as that of the Thatcher years, but even hardened investors remain just as susceptible. The only difference is that while the glamour stocks of the 1980s were those that reflected the conspicuous consumption, spend-until-you-drop culture of those times, the fashionable flotations of the early 1990s are exercises in technology - biotechnology and computer shares, like Division, Proteus or British Bio Technology, for the most part.

What unites these stocks is the way they promise jam tomorrow rather than today. The theme driving today's fashion stocks is the idea that science will transform our lives over the next few years.

That is all very well, as long as shareholders bear in mind that investing money in such a 'concept' stock is putting up venture capital. And that means ignoring the product and scrutinising the management. The most important lesson to be gleaned from the faded faces of 1980s glamour stocks is that it is very difficult for any one-man or one-woman band to make the transition from small business to big business.

Instead of gazing entranced at the potential of Virtuality's Blade Runner-style games, the City would have spent its time better asking itself about Dr Jon Waldern's management capabilities. After all, true beauty is more than skin deep.