Your money where your mouse is

As memories of the Millenium celebrations fade, the army of private investors that piled into hi-tech stocks before Christmas in unprecendented numbers are now being faced with a crucial test. Just how tough are their nerves? If any of these people, many of them new to investing in the stockmarket, had any illusions that hi-tech stocks only went upwards, they were shattered in the week following the New Year.

As memories of the Millenium celebrations fade, the army of private investors that piled into hi-tech stocks before Christmas in unprecendented numbers are now being faced with a crucial test. Just how tough are their nerves? If any of these people, many of them new to investing in the stockmarket, had any illusions that hi-tech stocks only went upwards, they were shattered in the week following the New Year.

In the first three days of 2000 almost £100bn was wiped from the FTSE 100 market in the UK. In the first two days alone, the IT sector plunged 12 per cent, software 11 per cent and telecom services 9 per cent.

Suddenly all that hype about "building the new economy" looked like hot air. Then along came the world's biggest merger, between AOL and Time Warner. The world's biggest Internet service provider was merging with one of the biggest media providers, sending the markets scurrying back up again.

So should private investors stick with their new dot com stocks and e-commerce launches? Or should they unload them, take their profits, and switch into a boring old utility company in order to ride out the storm?

There is no way to tell whether the tech stocks are heading for a fall this year, but investors should be braced for a rollercoaster ride. The quarter point rise in UK interest rates this week will inevitably be followed by similar rises in the US and Europe, which could jolt stockmarkets.

Nevertheless the sheer volume of private share purchases seems to be holding to the December "frenzy" levels. So much so that one execution-only stockbroker, Dealwise, was temporarily forced to stop opening new client accounts this week "whilst the high level of demand from existing clients continues."

Whatever happens to share prices, one certainty is that we are in a new world as far as the private investor is concerned. The access to priveleged information enjoyed by the City slickers in the Square Mile is no longer the advantage it once was. Private investors connected to the Internet can now "mine" as much information about companies as the largest City institutions. The London Stock Exchange for example, has given up its monopoly of official company announcements, the Regulatory News Service. Now the service is available over the Internet, to everyone.

Whether or not the post-New Year wobbles in the markets have taken the shine off e-commerce and dot com shares, there are a huge number of new investing opportunities set to whet punters' appetites.

At least 50 Internet businesses are set to float on the UK stockmarket this year alone; not to mention another 500 (at least) in the US. Significantly, many of the biggest planned floats are in personal finance, such as iii.com. It seems more and more people want to increase control of their finances by using the web.

Bill Brown, director of AIM equities at the AIM Trust, which holds shares in the Alternative Investment Market, says: "I certainly understand that we're in a new world."

Mr Brown manages £43m of clients' funds, invested in a host of young, hi-tech companies. He compares the dawn of the Internet age to the Klondike gold rush of the 19th century, saying that: "The people who sold the picks and shovels ended up making more money than the prospectors they sold them to. We invest in the companies that produce the tools which operate the Internet. We try to avoid the e-retailers and dot coms."

Mr Brown admits this means he misses some of the spectacular gains that such stocks have made in recent months, but insists that his strategy will deliver more stable growth.

One part of this "new world" that Mr Brown could do without (and this goes for a lot of established investment professionals) is Internet bulletin boards. These have sprung to fame as providing a free source of what appears to be inside information and stockmarket tips. Many tips on such sites have moved share prices in recent weeks.

Andy Yates, whose company DigitalLook.com tracks share tips on bulletin boards, says: "On 4 January, shares in pharmaceutical group Peptide Therapeutics rose on Internet rumours that it was about to be aquired by biotech rival Oxford Biomedica - sending the shares up 20 per cent, or 11p, to 66p in matter of days."

Mr Yates adds that no deal has yet been announced and the shares have slipped back - but the rumours persist. He says this shows both the power of boards, and the danger of relying on them for a quick killing.

Mr Brown is more scathing: "I'd advise people who have just bought a new personal computer to explore the huge amount of information available about companies on the web - but not on the bulletin boards."

Returning to whether you should hold on to your tech stocks, Mr Brown reckons that "the next six months will sort the sheep from the goats, as many of these companies will be reporting interim results. There will be winners and losers - in general, the hi-tech market will continue going upward."

Jeremy Batstone, head of research at NatWest Stockbrokers, is also worried that the bulletin boards may be encouraging a "casino mentality amongst inexperienced investors - which I find very, very concerning."

Mr Batsone adds: "I love the idea of wider share ownership, but I'm worried about unscrupulous people taking advantage of inexperienced investors."

So what does Mr Batstone anticipate for the markets this year? "A revolution is underway. Private investors are right to go for areas where value is being created, such as media and Internet stocks. They should avoid the dinosaurs: the general retailers, food retailers and producers."

Despite the fact that Mr Batsone is an unashamed bull of the tech stocks, he admits: "It will be a rollercoaster. No one knows how to value these Internet companies. Investors must be selective and discerning."

Terry Bond, an old hand in the markets who writes our "Diary of a Private Investor"( see page 5), is confident that the new army of punters are more than a match for the choppy waters ahead: "Britain's private investors are acting like professionals - they're buying on the dips."

Warming to his theme, Mr Bond says: "This new generation of investors has been well-schooled. They know that shares go down as well as up. Every advert says so. The new kid on the block is much more experienced in life than we think." Revealing himself as an unrepentant optimist of the markets, Mr Bond says: "The wheels aren't coming off the hi- tech bandwagon - and they won't in the future".

Britain's intrepid army of new investors are about to find out whether Messrs Brown, Batstone and Bond are right.