Lunacy on the money trail

FINANCIAL commentator Peter Moore’s basic view of the New Economy is simple and unambiguous.

“There is no option for the serious investor but to invest in the new economy,” he says.

In his latest book titled So Where’s the Money Then? Mr Moore takes us through the process of the development of what we now call the new economy.

He examines the historical development of the communications markets and the creation of the information age and the successes and the scams that have resulted in billions of dollars being made and just as much being lost.

Moore also provides handy rules for us to follow in the assessment of the companies involved in the knowledge-based economy.

In a section of the book subtitled Great Stories of Lunacies, Moore provides a fascinating insight into some of the maness that litters the history of speculation. The first of these was the float of a fictitious country on the London Market in 1821.

The “Poyias Loan” raised the best part of one million pounds and led to a fatal colonisation endeavour in which possibly more than 100 colonialists died, and it also resulted in the flight of the entrepreneur to Majorca with the bulk of the proceeds of the loan.

For Australian investors, flights to Majorca with investors’ money are something we have become accustomed to.

Then there was the story of “The Metropolitan Bath Company” which proposed to provide seawater for bathing to London by piping water from the coast, or the “London Umbrella Company” which proposed establishing umbrella stations for customers to rent in wet weather, which is of course in plentiful supply in London.

The “Metropolitan Fish Company” had some unintelligible project to feed fish to London’s poor. The “Resurr-ection Metal Company” wanted to reclaim cannon balls from the site of the battle of Trafalgar and sell them for scrap as well as numerous proposals for reclaiming riches laying under various seas.

As Moore points out “The continual challenge in investing in any innovation-led boom is sorting out the projects which are going to have serious on-going value and commercial longevity from the puffery which surrounds any innovation.

“As innovation booms mature and increasing numbers of new investors come on board, people become more convinced that the prosperity and growth will last forever, or at least until they have maximised and exited their investment.

“At the same time increasing numbers of voluntary or involuntary frauds are generated and sold to investors, frauds which are the first to fail and the most damaging to investors.

“Unfortunately in innovation-led booms, people are most credulous and most vulnerable to investment excesses when they see the greatest opportunity for wealth and are most excited by a herd-driven investment environment”.

So how does one go about choosing the companies that aren’t going to be the frauds that fail?

Moore has seven measures that he suggests the investor needs to apply to choose an investment in the new economy.

His rules are just as applicable to any other investment medium as it is to new economy companies. But how often do we see the complete obliteration of these rules in the desperate chase for wealth through the investment in potential and in some cases dangerous investment opportunities.

Moore’s book is a fascinating read. It is easy to digest and provides a great deal of interesting and amusing anecdotal evidence for some of the dire warnings that he postulates. In many ways it reiterates in a very readable and interesting fashion some of the things we have been saying in this column.

It is a highly recommended read for any one considering investing in the new economy sector and as Moore states “There is no option for the serious investor but to invest in the new economy”.

The book is published by Wright Books and is available at all good bookstores.