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MARKET COMMENT
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With the present infatuation for high yield and deep 'value' stock market strategies, now must be the time to hunt for growth shares. Growth shares that produce the best returns tend to have two features. Firstly (and somewhat obviously), they have the wherewithal to generate long-term increases in earnings. Secondly, the nature of their industry should encourage investors to build 'castles in the air' with their wildly optimistic valuations. In his legendary book A Random Walk Down Wall Street, Burton Malkiel referred to what John Maynard Keynes had noted on the subject. Malkiel claims it was Keynes' opinion that "the successful investor tries to beat the gun by estimating what investment situations are most susceptible to public castle building and then buying before the crowd." From the South Sea Bubble to the Internet boom, stock markets have often been prey to manic castle building. The key is to latch onto something new and perhaps a little mysterious, but with obviously great potential. You need something 'new' because investors will know all the problems of anything 'old', which reduces the opportunity for rampant bullishness. Areas of technology have therefore been the castle builder's favourite. In the current stock market climate, investors will almost certainly be digging the foundations of the next tech castle. The sort of share to consider? One possibility could be Porvair (LSE: PRV), a £64m business that develops fuel cells. Or maybe Innovision (LSE: INN), a £16m AIM-listed company, which has an interesting involvement in the growing Radio Frequency Identification industry. Both firms are small, have chequered financial pasts yet possess lots of potential in exciting new fields. Though finding shares like these that are ripe for castle building can be straightforward, the tricky part is determining whether such companies can ever produce the profit growth to start the construction. More: A Random Walk Down Wall Street | Fool.com Interview With Burton Malkiel