22 APRIL 2000, Page 27


Easy come, easy go if the trend is your friend you can go round the bend


Bertie Wooster's Aunt Dahlia knew how to get her way: 'Good old blackmail. You can't beat it.' On the receiving end, she felt differently. All depended, she thought, on whether you met blackmail coming or going. That applies to the stock market, too, as hopeful investors have found out the hard way. Only a month ago it was all go and the Internet stocks were all go-go. Ten new shares from the new economy had forced their way into the FT-SE Index, which is the market's premier league. In City and Suburban I disobligingly wondered which of them would be the next Polly Peck. That bag of nails or box of rotten oranges had its moment of glory in the index, too. Once it got there, the big investors bought it — to balance their portfolios, as they would say — and the tracker funds, which mimic the performance of the index, had to own it. This means waiting for shares to go up and then chasing them higher. It is sometimes described as letting the trend be your friend, which works well until the trend takes a bend. It is also called momentum invest- ment, or, by doubters like me, bigger-fool theory — the theory being that a bigger fool than you will turn up and pay even more than you did. All these theorists have had an unhappy few weeks. They have learned that, like blackmail, momentum works both ways. Even after this week's attempt at a bounce, modish shares like Baltimore, Psion and even dear little lastminute have lost half their value since their market peaked in March. As for the newcomers to the pre- mier league, five out of ten face instant relegation, and those who bought them because they had gone up will now have to sell them because they are going down.