Boom in techs not based on the 'facts'

Author: By KATRINA NICHOLAS Date: 23/12/1999

The latest boom in tech stocks is being driven by retail investors, many of whom do not understandthe companies they are buying into, according to financial analysts and executives contactedyesterday.

The float last week of Data Card Systems is a typical example of the impact of retail investors in themarket. DCS raised $3.5 million selling 8.75 million shares at 40c each and most of the stock wentto small retail investors. Upon listing, the shares opened at 74c and climbed to a high of 85c beforeeasing to close at 72c, an 80 per cent premium to their 40c issue price. Yet DCS chairman Mr JohnGillon said he doubted whether investors read prospectuses in any detail.

``And even if they do, perhaps they don't fully understand the technical details," he said.

Mr Gillon said he believed many retail clients of the underwriter, ChartPac Securities, simply rolledsome money out of one investment and into Data Card Systems.

People who invested in tech companies without an adequate comprehension of the business weregenerally buying between $2,000 and $5,000 of shares.

``For that quantum [of money] they don't believe it [the prospectus] warrants their time andattention," Mr Gillon said.

Perhaps, then, the steadier debut of HotCopper yesterday may be attributed to the higher levelsof institutional investors.

Shares in HotCopper, which runs a financial information and chat site, opened at 35c and rose toa high of 38c before settling back to close at 35c, a modest premium to the 30c issue price.Volume was huge and 7.6 million of the 23.4 million tradable shares changed hands in two hours.

HotCopper raised $3.6 million from 12 million 30c shares plus $1.5 million in oversubscriptions.

HotCopper executive director Mr Mike Vallender, who has a 2.15 per cent stake in the company,claimed HotCopper had several institutional investors, including financial planners Pacific RimInvestment Corp.

Mr Vallender said many retail investors were ``baby boomers" with a retirement nest egg.

``I don't think all understand the story but I do think some financial advisers underestimate theaverage Australian," he said.

Mr Tony Cunningham, Managing Director of CPS Capital, said so-called day-traders often had little interest in the business behind acompany.

``I don't think they're completely stupid but a lot of day traders seepositive momentum in a stock, are not really interested in the stockitself but want to keep that momentum going," he said.

``In general they are the short-term shareholders and their exposureto risk is minimal, only the two to three days they are in."

One day trader said that when he purchased shares he did not usually know much about the companyitself. Although he said he generally read about the company after the purchase, his main concern wasalways whether the investment would bring lucrative short-term returns.

Mr Chris Gosselin, managing director of Marketfaxts, which listed on Tuesday, described this typeof retail investor as a ``trader" rather than a stayer. He said the latter had a more conservativeinvestment strategy while the former often only understood price and movement.

``If you're there for a quick buck you don't really need to know what the company is, just that thereare more buyers than sellers," said Mr Gosselin, a former stockbroker.

He also said the more conservative retail investors at first stayed out of tech stocks.

``You're seeing profits of 50 or 200 per cent overnight," Mr Gosselin said. ``The conservativeinvestor can't see any fundamental reason for the rise and stand aside from it."