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's events. Geoff's 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.