Investors beware: is the new dotcom bubble going to burst?

from the Independent UK:




Investors beware: is the new dotcom bubble going to burst?

By David Prosser, Business Editor
Saturday, 21 May 2011


As ever, Warren Buffett puts it best. "If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy," he says. And in bubble 2.0, just like the first dotcom boom and bust more than a decade ago, the world's most famous investor is staying on the sidelines rather then risk being made the patsy.

Not that investors in LinkedIn, the social networking site for professionals, are in any mood to listen to such warnings. After seeing its share price more than double on its US stock market debut on Thursday, its founder, Reid Hoffman, might have expected to see his $2.4bn (£1.47bn) stake take a reality check yesterday, and by the closing bell the shares had fallen slightly by 1.2 per cent.

For those old enough to remember the heady years of the late nineties – when many of today's young technology entrepreneurs were still in short trousers – the stock market's new-found fascination with social networking and all-things internet prompts a weary sense of déjà vu. In Britain, dotcom mania peaked, remarkably neatly, on the final day of the last century, after a boom that saw technology stocks more than double in 1999 alone. The US Nasdaq index struggled on until March 2000, having registered similarly impressive returns. Their fall was equally dramatic, with technology stocks having given up all their gains – and more – within two years, prompting a wider stock market crash.

The stories that stick in the mind from that period include the likes of Boo.com, which went bust within 18 months of raising £100m from investors. But for each of the launches that crashed and burned, there were many more dotcoms whose investors simply over-estimated the potential to make money. And it is these examples that investors forget when they point out that today's red-hot technology companies do have some sales. ............(more)

The complete piece is at: http://www.independent.co.uk/life-style/gadgets-and-tech/news/investors-beware-is-the-new-dotcom-bubble-going-to-burst-2287159.html