Jubilation, tears, or numbness? The information technology (IT) syndrome should continue to epitomise those emotions as the share prices keep on the wild gyrations path.
When Neil McCann, chairman of Fyffes, the fresh fruit distributor, faces his shareholders this afternoon, he should be meet with perplexed faces. The shareholders, after seeing their shares in the doldrums for many years, saw them doubling to €4; that happened on a mere click from the group that it had set up an Internet subsidiary; worldoffruit.com. But, in line with the temporary slide against IT shares, Fyffes' fell back to €3.30.
That subsidiary which allows companies to buy online does appear to have a real potential and plans to float its shares on the Nasdaq by the end of the year. But the market was, in effect, saying that worldoffruit which is only starting to trade was worth around €500 million, or as much as the core Fyffes itself!
Most companies now openly talk about having an e-commerce division and that is very sensible as more and more commerce is done on the Internet. Investors will have to learn to be selective; there will be plenty of jubilation, but many are going to end up with severely burnt fingers. Fashionable shares and businesses have been around almost from the beginning of time. And the cycles always turn downward, in time, though the IT cycle has a good way to run yet. Here are some examples.
Tulip mania is perhaps the best documented. For a stunning two months, December 1636 and January 1637, fortunes were made and lost in tulip bulb futures trading in the Netherlands. There have been plenty of tales of jubilation - the orphans who made a fortune by selling their late father's tulip bulbs - and misery by the man who owned a dozen extremely rare bulbs and wouldn't part with them at any price.
In 1720 there was the South Sea Bubble. Sir Isaac Newton, realised an enormous £7,000 on his early investments in the South Sea Company. But his genius was to fail him. He was sucked back into the speculation at its climax and lost all his profits plus a further £13,000.
The gold rush in the US with the associated violence and greed in the last century has been well categorised in movies and books. And the sights of rusty shacks, and graves with moving epitaphs, on some of the Nevada mountains vividly illustrate what happened to many who pursued elusive minerals.
Railway stocks had their day during the pioneering days. And automobile companies thrived in the 1920s; but that industry is now down to a handful of players.
The 1970s saw the emergence of the "shell" company. To the forefront was Jim Slater who saw the opportunity of enhancing earnings by taking over companies unencumbered with debt and then using that shell to acquire larger badly rated companies. This was financial engineering at its best but as investors questioned their fickleness, some promoters tried to back into assets; this made them stodgy and avoidable. Surprisingly, they have recently re-emerged - in a different format - in the UK: The "Gang of Four" lead by Michael Ederson, invested in Knutsford whose shares soared from 2p to 270p before falling back to 100p. With a market capitalisation of just £275 million, it has been lined with a possible takeover of Marks & Spencer and J. Sainsbury!
Then there was the mineral and oil bandwagon. The most spectacular was the Australian share Poseidon which rocketed from 90 cents to $280 on the strength of a nickel find at Windarra in Western Australia, before collapsing to 69 cents. In Ireland, we had our Atlantic Resources. In 1983 with a market valuation of £142 million it was larger than CRH but the peak share price of 164.5p shrivelled to a mere 2.25p.
More recently, the IT bubble has thrown up some ridiculous valuations. Ever heard of Fii Group? Well that is a modest British shoe company that issued a press release stating it was looking at developing Wireless Application Protocols, the standards which govern how mobile phones will interface with the world wide web.
That statement was sufficient to push the share from 33p to 161p. Then there was the suffering Blakes Clothing whose shares were bumping along at 7p earlier this year but they soared to £1 just because it announced plans to become an e-commerce group.
Domestically, we have had a number with questionable valuations, including Riverdeep, the educational software company, with projected losses of $53 million in the next two year, which was accorded the ridiculous valuation of $1.8 billion. The shares have since come back from $66 to $55.5. Because they have no profits, these companies are now being valued on the questionable multiple of sales ratio but even then Riverdeep is valued appreciably higher than SmartForce which has a track record.
Clearly, most companies need an e-commerce arm, not only to protect their market but also to expand it.
Fyffes is one of the companies which should benefit from being on the Internet. Still, DCC, taking advantage of Fyffe's re-rating sold its final 10.2 per cent stake in the fruit company for €106.7 million, or an average of €3.42 per share, will not benefit. But the profit of €85 million it made on this investment, is tangible, and real, which is more than can be said for a lot of the "full of promise", IT shares.
