Outlook: Techno-mania turns stock market into a casino

FEW STOCKS better epitomise the present bout of technology mania than Psion, the palm held computer company. Over the past two months the shares have rocketed from just pounds 8 to a peak of a little more than pounds 30. Then, like a spent firework, down they plummeted yesterday, by more than 40 per cent at one stage, only again to bounce back up, after two suspensions and a clutch of try-on rogue trades, as the bargain hunters moved in.

Is there any rational explanation for these wild gyrations, or are they just a symptom of the present madness? A bit of both seems to be the answer.

Until yesterday's unexpected announcement from Ericsson that it is linking up with Microsoft to develop internet and e mail functions for mobile phones, it was generally assumed that Psion had the field to itself. In a blaze of publicity last year, this startling British success story had managed to sign up the world's top four mobile phone companies - Nokia, Ericsson, Motorola and Matsushita - to its Symbian project to develop the next generation of smart mobile phones and palm held computers.

It was never very likely, when you think about it, that big brother Gates was going to sit there on the sidelines and allow Psion a clear run in what is expected to become the world's fastest growing market for operating systems. Nor was it at all likely that companies as fiercely competitive as these four mobile phone goliaths were going to sign up collectively and exclusively to just one of those developing technology in this area.

But then this present heady investment craze isn't about the likely, is it? Rather, it concerns the merely possible, or just about plausible. If you think this sounds a little unfair on poor little Psion, which unlike so many other participants in the techno-mania, actually already has a very credible product with outstanding growth potential, you would be right.

As it happens, what Microsoft is planning to do with Ericsson, which is to develop a browser, is a bit different from what Psion is doing in attempting to create an operating system. At this stage then, Ericsson's link with Microsoft is not incompatible with its continuing participation in Symbian, though plainly it has potential to become so. It could therefore be argued that Psion remains one of the better new economy plays.

The trouble is that stock markets have become incapable of distinguishing between the good and the bad, or of credibly assessing the growth prospects and market opportunity of these new economy companies. All that is required is the magic words "new economy" to be tagged to a company's prospects, and away it goes.

It is hard not to laugh at the naivity of it all, or marvel at the cynicism of some of those who are driving the process. For many market professionals, the game has become one of creating momentum first thing in the morning by buying a little stock and promoting it on the internet bulletin boards, then selling into the strength as the lemmings pile in. We are dealing here with a fully blown mania, without a shadow of a doubt, and like all manias, it is bound to end badly.

As the money - smart, funny and just plain stupid alike - chases the techno and telecom sectors ever higher, older, quality stocks in traditional industries are bombing. Take Barclays - down from pounds 20 to little more than pounds 16 in the last month alone. A judgement day will come, eventually, when the wheat will be separated from the chaff. Unfortunately, it is as hard as ever to know when it might be or what might trigger it.