Climbing into the markets for a wild ride on sexy stock

Friday 2nd February 2001

Brokers in many countries were recommending high-tech stocks a year ago even at extraordinary projected price/earnings multiples and in some instances where the companies had no earnings.

They are more circumspect these days after falls, some massive, in the share prices of last year's darlings.

A few examples from the US show what happened.

Yahoo! Inc was a favourite at that time. The company is involved in internet services and the shares were selling at $US403.75 at the end of 1999.

There was a stock split in February, adjusting the December 1999 price to $US201.87. The price was $US165.25 at the end of February. But the rest of the year saw a steep dive, subject to occasional rallies. Yahoo! sold at $US34.74 last week.

Another favourite, Amazon.com, did a bit better but was still well down over the year. Amazon.com sells books and music on the internet and its shares were $US76.12 in December 1999. It fell below $US35 during 2000 but had recovered to $US54 last week.

Falls were not restricted to smaller companies. Mighty Microsoft closed 1999 at $US60.12 last week, a drop of 48.5%. Microsoft had problems with the US courts last year, although it has declared intentions to fight on. But the stock was also caught up in the flight from technology, leaving founder Bill Gates down to his last few billion.

The fallout from the US was felt everywhere, including New Zealand, where our crop of high-tech minnows got stranded when the tide went out.

The National Business Review examined those companies regularly last year and there is no need to go over the ground again.

CSFB's analysis of growth industries in the coming years had merit in discussing likely general trends, although it did make some individual stock recommendations.

All investors face the problem of deciding what companies will thrive over the next 10 years and which finish on the corporate garbage dump.

That was always so and will always be so as people climb into markets for a growth ride on sexy stocks.

Do not be surprised when an examination of stock exchange lists in 2011 shows up the absence of many of today's high-tech companies.

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