Tobacco glowing example that old industries are a better investment

New-technology stocks may be all the rage but a Credit Suisse report on Wednesday said they have been proved to be a disappointing investment and may lose out to the “old industries”.

“New industries can deliver disappointing returns if stock prices are initially too optimistic about future growth,” said the report, contained in the Credit Suisse Global Investment Returns Yearbook, written by Elroy Dimson, Paul Marsh and Mike Staunton.

The authors, who tracked investment returns in the past 115 years in the US and London stock markets, find new industries are born on waves of initial public offerings that are popular at the time of listing but then, as a group, tend to underperform and even fizzle out.

“Successive waves of new industries and companies have transformed the world, yet they have sometimes proved disappointing investments,” the report said.

This is because many investors tend to be over-enthusiastic about new-technology stocks and pay too high for their IPO prices, creating a bubble. After the bubble bursts, the stocks fall sharply, leaving investors with their fingers burnt.

A prime example would be the bursting of the dotcom bubble in 2000. Tech stocks fell 82 per cent over the next two and a half years.