New research by Frank Russell has put some meat behind claims the current boom in Internet companies is much the same as a number of boom and bust industries in the past, such as the frenzy which surrounded the railroad and telegraph in the 1800s.
New research by Frank Russell has put some meat behind claims the current boom in Internet companies is much the same as a number of boom and bust industries in the past, such as the frenzy which surrounded the railroad and telegraph in the 1800s.
Frank Russell research director Scott Donald says the research shows the current Internet boom has many similarities with the railroad boom that revolutionised the way people lived in the 19th century, with growth and investment opportunities coming and going very quickly.
“The pattern shows us that a select few will get rich by investing in the initial highly risky leaps in technology, but most of the sustained wealth typically comes from broader second round im-pacts of technology,” Donald says.
Donald says that like the dot.com frenzy, the 1840s railroad boom in the United Kingdom at-tracted investors with around Stg700 million invested or ten times the country’s imports at that time.
But by 1850 railroad shares in the United Kingdom had declined 85 per cent and the total value of all railway shares was less than half the total capital expended on them.
Donald says that like the examples of the railroad and telegraph, the Internet and other current forms of technology could also be quickly superseded by new innovations.
The beneficiaries of the dot.com boom could be “bricks and mortar” companies that adapt and use the technology better than Internet companies, he says.
“The major benefits of (the Internet) are not necessarily obvious, there are other companies (be-sides Internet and technology companies) that will exploit technological changes.
“Second-round companies in technology cycles are typically more traditionally well established organisations … these companies often find ways to apply the technology to longer term cus-tomer needs.”
Although Donald says it is likely that there will be more losers than winners from the technology boom, he was reluctant to pinpoint winners and losers in the sector, or when a downturn in the Internet sector could occur.
The report was launched to coincide with a rebranding of Fran Russell’s investment process which is used by ANZ for its retail funds management business. The new brand is to be called Russell 3D.
