UK – Investing in new technology companies is a “high risk loser’s game”, says a new report by Dr Sandy Nairn, chief investment officer at Scottish Widows Investment Partnership.

The report, a historical survey of new technology developments vis-à-vis the stock market and the internet, suggests that only those with strictly disciplined investment strategies or specialist knowledge stand to benefit in the long term.

Nairn looks at ten periods in which new technologies, such as UK and US railways, cars, oil, computers and telephony, were greeted with open arms on the stock markets and then compares them with the recent history of the internet until the market bubble of early 2000.

Among the report’s major findings is the suggestion that all market bubbles linked to new technology end in an oversupply of capital followed by periods of retrenchment and restructuring which leaves most of the new companies dead and buried.
Nairn notes that it is rare that the supposed market leaders come out of it as long term winners.

He adds that the only companies likely to make consistently high returns from new technologies are companies protected by some from of monopoly, such as patents or cost curve advantages, though there is no evidence to suggest that new technologies will actually deliver higher returns in the long run.

Concerning the internet, Nairn’s most striking observation is that the market bubble of 1999-2000 will have a positive effect long term, despite the markets current malaise.

The financial services industry, he says, will be most affected by the internet revolution as it will be radically transformed and many existing firms will find it hard to resist the threat from new companies who understand the new technology better.
Nairn warns that this is a process that has barely begun.