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"Tell a man there are 300 billion stars in the universe and he'll believe you. Tell him a bench has wet paint on it and he'll have to touch it to be sure." ~ Anon What is it about bubbles that seem to enthral many investors? You would have thought that investors would run a mile at the first sign of froth following the bursting of the tech bubble six years ago. Yet many investors are still drawn to bubbles, and the current fascination with online poker companies is something that gives me reason for concern. Here's why. Star Performers Can't Fail When star performers in a sector reckon they are too big to fail then it may be time to worry. For instance, what can be more damaging for a business than to face losing access to its biggest market? Yet key players in the online poker arena that include 888.com (LSE: 888) and PartyGaming (LSE: PRTY) have brushed aside the threat of a damaging US bill aimed at stamping out Internet gambling. The bill, which has been cleared by the House Financial Services Committee, will prohibit gaming sites from accepting credit card, cheques and any form of electronic fund transfer. Online gaming bulls think the bill is unenforceable but the legislation could put the US out of bounds to online poker and gaming sites. Crazy Valuations When a company such as Fairground Gaming (LSE: FGH) can raise £4m based on a business plan that involves buying up other players in the market then investors should perhaps take note. Fairground Gaming is currently valued at £25m, yet it neither generates a profit nor derives any revenue. Its sole purpose is to identify opportunities for consolidation in the smaller end of the fragmented online gaming sector. Built-to-flip One of the best ways to make money in a bubble market is to set up a business and sell it quickly. Take CheekyMoon, an offbeat online gaming company which was only formed in August 2005 by Lord Beaverbrook. It also counts David Baddiel of Baddiel and Skinner fame as one of its main shareholders. After less than a year since its formation, CheekyMoon has been sold to Pine Ventures, which in turn plans to float the business onto the market next month. These are just three of many reasons that lead me to conclude that we are witnessing a bubble in the poker sector. Of course you can still make money whilst a bubble is inflating - many did with Tulipmania, South Sea Bubble, Victorian railways and the tech bubble, too. Trouble is you have no way of knowing when the bubble will burst.
