Just call it an 'e-motion'

As ever, when the stock market goes for a burton it's as much about emotion as anything. In the current situation, we might call it e-Motion.

As ever, when the stock market goes for a burton it's as much about emotion as anything.

In the current situation, we might call it e-Motion.

Because it's that "e" thing that has driven the Nasdaq and the technology stocks to the giddy heights that come before a fall.

Many people have had trouble getting their heads around why so many have invested, wildly it seems, in start-up companies which have plenty of capital, not much apparent business, and no profits.

On the face of it, it makes no sense. As Fortune magazine wrote last year: "Capital is basically free and growth drivers are worth more than earnings."

Internet companies have no tangible assets, and investors have to guess about their potential to earn.

But with share prices galloping ahead and US interest rates low, everyone wanted to climb aboard. No one seems to have heeded the lessons of the 1980s when so many got burned by borrowing on margin call to invest.

The reality is - and always was - that at some point investors are going to demand real profits.

But with the markets so awash in venture capital, e-businesses kept popping up all over the place. Get in on the ground floor (or near enough) and the great American dream of becoming a millionaire was only a trade or two away. Right. E-motion.

Notice how the "old economy, new economy" argument seems to have taken a backseat as the technology stocks go into freefall.

The traditional IT vendors, such as IBM, Hewlett-Packard and Microsoft have taken a hammering, as much by association, it seems.

The reality always was that there were always going to be winners and losers in the "e" space. Venture capitalists don't confine their investments to one prospect; they invest across a broad spread, and if one of 30 turns into an "e" winner, they'll do very nicely.

But the small punter, caught up in the e-motion, is likely to really suffer.

The current market turmoil doesn't appear to have the damaging potential of the 1987 crash. At the time of writing, Wall Street was hovering around 10,000. That's still twice what it was two years ago. And the Nasdaq has to come back to its levels of two years back.

It's a very large correction which may see investors return to fundamentals when analysing the more traditional companies. But there's still no way to measure the e-space other than gut feeling and the quality of the people running the companies. It remains a casino - and casinos certainly know how to make money out of emotion.

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