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However, trading is as busy as ever with less than a fortnight to go before the end of the year. Volume in small company shares has been particularly heavy over the last few months with as many as 40 million AIM shares changing hands in one day. Up until this Autumn only about a tenth of that number, or just 4m, were traded on any one day.
What is particularly worrying is that many of the popular stocks being traded currently have no business. Indeed many make a virtue of not having any defined way of making money at all. These are shell companies, whose share prices rise on the reputation of their directors and their deal-making ability alone.
This speculative trend started when Knutsford (LSE: KTD) floated at 3p back in early October. The company had no trading business to speak of except a very small clothing operation. The presence of retail gurus Archie Norman, the Tory MP who used to chair supermarket chain Asda, and Julian Richer, of Richer Sounds fame, sparked much interest and the shares rocketed to over 230p. In one day alone the stock leapt more than 1500%. That's seriously nutty.
This happened as investors suggested that the group might take over a troubled retailer, even maybe Marks & Spencer (LSE: MKS), with a view to then trying to turn such an ailing business around. It is on this prospect and this alone that the company is currently valued at a staggering £640m. This ludicrous situation has sparked a growing number of rivals into action. All are desperately trying to turn worthless bits of paper into valuable pots of gold.
How does this particular form of alchemy work, you might wonder? I went to a Christmas carol service last night and the whole process reminds me of Mary's comments to the angel Gabriel on hearing that she was about to conceive a baby: "How can this be, seeing I am a Virgin?" To which Gabriel replies "Nothing is impossible with God."
Don't worry, this Fool's Eye View isn't about to turn into a nativity sermon. But the birth of money, or the creation of new wealth, has been greatly inspired by the magic spirit of the Internet. A series of shell companies have touted themselves as Internet incubator funds. I am thinking in particular of Multimedia (LSE: MTD), eVestment (LSE: EVC), e-Capital Investments (LSE: ECI) and Hansom (LSE: HSO).
These four AIM companies are either stocks which used to have legitimate businesses but have abandoned them in favour of Internet investment or else non-trading companies which have been explicitly floated to invest in Internet ventures. Multimedia and Hansom, the erstwhile provider of London black cab services, fall into the former category. eVestment and e-Capital are of the latter type.
Most amazingly three of them (all except Hansom) have seen their shares jump roughly 1000% since deciding to hunt out Internet investments! And Hansom has gone up 400%. This is quite remarkable, I'm sure you will agree.
The grandfather of this style of investing was Durlacher (LSE: DUC). The investment bank, with many hi-tech clients in which it has a stake, puts all rivals in the shade with its 6300% rise in value so far this year to £800m. Seeing this leap, these funds have claimed to offer a similar chance to share in the fortunes of its investments in Internet properties.
But remember before investing that many of the investments taken on by such mini venture capital funds will not turn out to provide the gold so desired by these alchemists. Only a handful will succeed. To prosper in such markets you have to adopt the attitude of a venture capitalist and expect a proportion of your investments to fail. This is not a very Foolish approach to adopt. If you want to avoid these failures then you are going to have to trade regularly in such stocks and sell some. A definite Foolish no-no.
Effectively these incubating shells are managed funds, with their attendant problems of the individual investor's loss of control. It would be far more Foolish to select some of the larger companies already on the UK market and really research them and, if and only if you believe in them for the long term, then consider investing. If you find you would not want to hold these stocks for a long time then ask yourself why you want to hold them at all.
This change of spirit has been partly fostered by the techMark. It is only since the launch of this special Stock Exchange index in early October that Multimedia, eVestment and e-Capital have risen so dramatically. This is because the techMark will only let in participants with a minimum market capitalisation of £50m.
In order to qualify, then, eVestment has jumped tenfold to £47m. e-Capital has jumped a similar amount to £40m and Multimedia has soared even further to £107m. Thus all three are on the verge of qualifying for the techMark. If successful, they would be bought by techMark index tracking funds, many of which are due to be launched in the New Year. Investing in such shells for this reason is nothing short of speculation again.
One final Foolish thought is not to kid yourself that this is an economic scenario never been seen before. On Friday night the Fool had its own particular Christmas party. TMF Pyad was reminiscing sagely about the last crazy gold rush he had witnessed. In the 1960s in Australia any mining share at all only had to talk about the prospect of minerals in the ground and investors poured money into the deep dark pit. Most of it consequently vanished.
The web also has black holes in it and investors need to keep their Foolish heads screwed on to avoid getting entangled in these tempting short-term speculations. You have been warned. If someone comes bearing gifts of gold, they could be just paper promises.
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