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CAZENOVE CAPITAL’S PETER HILLIER JOINS US TO ANSWER A QUESTION ABOUT INVESTMENT

IT’S 20 YEARS SINCE THE ‘DOTCOM’ CRASH: WHAT HAVE WE LEARNED?

ANSWER: This time 20 years ago fortunes were being lost and reputations ruined as world stock markets plunged. During the late-1990s, amid a frenzy of speculation, investors and day traders were lured into hot ‘TMT’ (technology, media and telecom) stocks – including numerous new businesses yet to turn a penny in profit. At the turn of the year 2000 this ‘dotcom’ bubble burst and shares crashed. In the UK, the episode dealt a heavy blow to the culture of individual share ownership.

In many cases, however, investors who held faith have been rewarded. The past two decades have shown that some of the insights of early internet investors were fundamentally correct, even if their timing was not. Many early internet companies were focused on building market-leading positions with the view that revenues and profits could wait. The approach was ridiculed after the dotcom crash, but has proved a winning strategy for some of today’s internet titans.

Some early dotcom casualties had unrealistic expectations about the speed of internet adoption. Others simply didn’t meet the expectations baked into their lofty share prices.

However, for companies that got it right, subsequent growth and earnings have been phenomenal. When Google floated in 2004, the entire company was worth $23 billion. Today its profits in a single year exceed $30 billion and it is valued at almost $1 trillion.

We may yet be in the foothills of a long tech spending boom. Cloud computing is just one area that we believe still offers huge potential. The cloud allows businesses to take their IT ‘out of the basement’ and access services online, at lower cost and more efficiently. Only 20% of large global firms have made the switch so far, according to one recent study. This suggests that the leaders in cloud computing, such as Microsoft, still have years of growth ahead of them.