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Investment view

Never underestimate the importance of a single word. In this case, the


word is “temporarily”. Last week, I made reference to the fact that the


downward spiral in technology shares had abated, perhaps temporarily. The


addition of “briefly” would have made this statement accurate. Bargain


hunters did step in to snap up what they perceived as promising companies


at rock-bottom prices but the bears returned to give TMT a thorough


mauling. By the end of last week, the S&P Technology index was close to a


third off its peak.


There are a number of lessons to be learned. First, this serves as a stark


reminder that markets always over-react – in both directions. It was easy


to predict some reversal of the headlong rush into technology shares but


the trouble was guessing the point from which it would take place. Which


brings me to lesson two. The herd instinct remains very strong in markets.


Sheep-like behaviour is nothing new. Investors – particularly professional


ones -slavishly follow trends en masse and will probably continue to do so.


The trend may be your friend but the other old adage in the language of


technical analysis is that a trend is a trend until it stops.


The third lesson is arguably the most important but has little to do with


any on/off love affair with technology. Volatility is a fact of life and is


becoming even greater, with market swings condensed into ever shorter time


periods. There is no time to jump ship if your avowed intention is to wait


until the tide turns and then sell. Is there a message for private


investors and their advisers? It makes a case for taking the long view.


Unfortunately, taking the long view is not easy under present business


conditions. The world is changing fast and the real fun in e-commerce has


yet to begin.


We have passed the stage where the internet is simply a vast store of


information to be explored like the British Library with all the books


strewn over the floor in no order. The automation of transactions is upon


us, making it often easier, quicker and cheaper to buy goods


electronically. Next is the development of sophisticated search mechanisms


so the computer will do all the work for you in finding the cheapest motor


insurance or healthiest butter substitute or even, dare I suggest, the most


relevant financial product. This will allow some very serious sorting of


sheep from goats, with companies offering inferior products exposed


instantly. The turmoil facing Marks & Spencer is little to what we might


expect. So the long view may not be so long after all. At least active


managers are demonstrating that they can add value when markets stop moving


upwards with barely a pause. Whether they will succeed in making money in


these turbulent conditions is another question entirely.


It happened that last week I was in Leeds talking to IFAs on business


opportunities at one of Geoff Chown&#39s events. Geoff&#39s enthusiasm for this


much maligned industry of ours is a tonic at a time when disintermediation


is becoming something of a buzzword in the distribution of financial


products. Among the speakers he had gathered were a number on the


well-aired topic of the internet and what it means to business in general.


Alex Palmer of Intel had a brief and telling message to those who attended.


Believe the internet hype, he said.


I could not resist tossing the odd technology titbit into my session and


it struck me as being particularly significant that all the questions at


the end related to the brief round-up of markets I gave and, in particular,


rotation in and out of the technology sector. Business opportunities were,


it seemed, much lower down most agendas.


The award for the most asked question must go to “When is it time to buy


technology stocks again?” And that says it all really. There is a belief


that technology is the new emperor. My fervent wish is that the gyrations


we have seen will have brought a degree of realism back into markets. I


would hate to think the emperor has no clothes.

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