Over recent weeks investors have witnessed extraordinary gyrations in the share prices of companies in the technology, media and telecommunications (TMT) sectors of the market.

Not surprisingly the focus has been on the US market where the Nasdaq index is seen as the bellweather of the global technology sector.

Over recent months, a spate of profit downgrades and announcements of slowing revenue growth from a wide spectrum of technology companies has pushed the Nasdaq Composite Index close to the 3,000 point level.

This compares with a peak of more than 5,000 at the height of TMT euphoria earlier this year.

The index is trading around 3,300, which is still approximately 20 per cent below the level at which it stood at the start of this year. While many new dot.com companies have seen their share prices ravaged, the real blow to investor confidence has come from disappointment with the financial results of several large, well-established companies such as Intel and Dell.

Indeed, the straw that broke the camel's back was the announcement of poorer than expected results from the mighty IBM, which led to an immediate 400-point drop in the Dow Jones Industrial Average.

Subsequently, US and European markets recovered strongly on the back of positive results from Microsoft and Finland's Nokia. Nokia brought forward its third-quarter results statement by one week and surprised investors by posting much better than expected results.

The company was equally optimistic regarding the future, predicting that the market for mobile handsets in 2001 would amount to 550 million units. Nokia's share price jumped by 27 per cent in one day and led to improved investor sentiment across the entire market.

With stock prices reacting sharply to both positive and negative results the extreme volatility that has become a feature of market conditions seems likely to persist for the foreseeable future.

This increases the risks associated with stock market investing, particularly for private investors. It is therefore not surprising that many private investors are shying away from committing fresh funds to stocks.

US equity mutual funds have seen outflows in recent months and the large online share-dealing brokers in Europe have reported a sharp fall-off in the number of new accounts being opened.

Throughout this phase of high volatility the Irish quoted technology companies have performed extremely well in terms of both their financial results and share prices.

The table provides some key data for Baltimore, Parthus and Iona. Over the past three months Parthus has seen its share price appreciate due to positive results and the announcement of new product developments and strategic alliances.

Since flotation in May its share price has more than trebled. Baltimore and Iona Technologies have seen relatively modest share price declines over the past three months. Nevertheless, both companies have enjoyed large share price appreciation over the past year.

Despite the shake-out in the technology sector all but the most recent shareholders in these three companies are still sitting on enormous capital gains and this performance highlights that the rewards associated with investing in technology companies can be high indeed.

Although most private investors will continue to be (rightly) wary of the higher risk associated with technology companies, the size of the potential rewards will nonetheless attract investment.

Given the much higher volatility attached to technology investing, stock picking and diversification are crucial. Furthermore, given the pace of technological change, investors will have to keep a close eye on developments in order to successfully manage their portfolios.

Assessing the valuation applied to these companies is extremely difficult with the result that most analysts focus on revenues and revenue growth rather than profitability.

In this respect the table shows the share price to sales (PSR) ratio that varies from 13 times for Iona to 84 in the case of Parthus. In practice, the rapid pace of change mean that such valuation yardsticks are of limited value.

Ultimately, investors in technology companies will have to rely on their gut instinct as to whether a company has the capability to succeed in a new and rapidly changing marketplace.

Although the risks are high, the potential rewards as exemplified by the three companies mentioned here suggest that the risks are well worth taking.