Opinion: Investors must beware hazardous opportunities

Food delivery service, rider delivering food to clints with bicycle - Concepts about transportation,

Deliveroo lost £223.7m last year, despite lockdown creating the perfect conditions for its business - Credit: Getty Images/iStockphoto

Football has captured even more column inches than usual this week.

On Monday, the murky spectre of a European Super League (ESL) raised it avaricious head in an ill-timed move designed to persuade us that watching Manchester United play Arsenal every other week would be a good idea. By Wednesday, the prospect had disappeared as England’s ‘Big Six’ realised they had committed a major PR gaff and seriously underestimated fans’ desire for competition, not a contrived closed shop.

Then we discovered that (Shock! Horror!) much of the deeply profound words of wisdom apparently uttered by Premier League stars on social media were actually written primarily by office juniors at well-remunerated PR companies.

We’ve been here before. Last year, allegations arose that some ‘celebrities’ (television cooks, catalogue models, daytime TV presenters etc) were regularly buying large numbers of non-existent ‘followers’ in an attempt to show just how popular they are on various social media platforms.

Considering how readily available they are and how cheap it is to buy say, 500,000 likes, flirts, hugs, or some other form of apparent online worship, it was a surprise it took so long for this ‘revelation’ to be made public. A number of companies regularly acquire similarly manufactured affection, ostensibly because it makes their operations appear popular and adds a tenuous form of credibility to their products.

Both celebs and companies who supplement their social media following by paying for new ‘friends’ are driven both by vanity and, presumably, a desire to exaggerate the importance of either their personalities or the stuff they’re selling, but how widespread is the practice?

Young woman using smart phone as a social media concept.

Last year it was revealed that some celebrities were buying likes and followers on their social media accounts - Credit: Getty Images/iStockphoto

No-one has a clue, a conclusion which might make more objective folks (that’s you, dear reader), question some of the, ahem, unsubstantiated figures posted either adjacent to a celeb’s air-brushed publicity shot or a company’s high-falutin’ gizmo that it desperately wants you to buy.

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Will a year of lockdown represent a high point for social media usage? It’s difficult to say as no-one knows what proportion of ‘followers’ are real and how many millions (billions?) are fake, but the social media phenomenon may be reaching peak effectiveness.

But, you may ask, what does this have to do with investing?

The answer is ‘everything’. Social media may appear ubiquitous now, but there was a time when Friends Reunited and fax machines were similarly dominant and look what happened to them.

The point is, companies – and the products they manufacture and sell – come and go and nowhere does this happen more rapidly than in the technology sector.

Nor is this a modern phenomenon: during the final throes of the 1998-2000 dotcom boom, investors witnessed a raft of companies floating on stock markets, most accompanied with promises of technologies capable of transforming lives and industries. The hype surrounding many of these internet-based outfits ensured their share prices soared to unsustainable levels, yet just like Icarus, they flew too high and far too close to the heat of professional auditing and analysis only for their share prices to crash. Of the hundreds of internet-facing companies that formed part of the dotcom boom twenty-odd years ago, only a handful, including Amazon and eBay, are still around.

business accounting with saving money with hand putting coins on stack concept financial

During the dotcom era, many investors suffered heavy losses - Credit: Getty Images/iStockphoto

Many investors suffered heavy losses as the technological juggernaut ground to a shuddering halt. Most believed that we had entered a new, technological paradigm, even though a sizable number of dotcom companies had negligible sales and non-existent profits.

We may currently be experiencing something similar as investors, desperate to identify the ‘next big thing’ or simply a much better return on their money, pile into newly-floated companies such as Deliveroo which lost £223.7 million last year, a period when conditions for its business could only be described as perfect. Its share price tumbled 31% on the day it floated on the London Stock Market last month, the worst-ever performance by a newly-listed firm.

One fund manager, describing investors’ seemingly insatiable appetite for risk, said: “When you are paying for blue sky, you have to be prepared for hope to disappear.”

Investors hoping to avoid such an outcome may conclude that having a word with an investment specialist prior to taking the plunge in the technology sector’s muddied, volatile waters, would make a great deal of sense as it could save them an enormous amount of money, quite apart from differentiating between genuine and dodgy, ESL-category opportunities.

THE WEEK IN NUMBERS

  • £370 - According to figures released by the DWP, pensioner incomes after deducting housing costs have almost doubled since 1995. In 2020, Under-75s had a weekly income of £370, while those aged over 75 received £302. The figures include income from savings, all pensions, employment and benefits.
  • 185% - Between March 2020 and the end of last month, a staggering (and record) £169.8 billion was deposited in bank and building society ‘easy access’ and current accounts. The figure represents an increase of 185% on the previous 12 months.
  • £92 billion - Five months ago, the Office for Budget Responsibility forecast that the cost of propping up the economy during the pandemic, measured by government borrowing, would be £394 billion. Figures due to be released on Friday will show that actual borrowing was £302 billion, or £92 billion lower than the OBR forecast.

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Luxury in demand: Read Peter Sharkey’s blog exclusively at www.moneymapp.com/blog

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