l'union fait la force
Thoughts On the "Tech Wreck"

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By MarcusOwl
June 12, 2001

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The "technology crash" that has occurred over the past year or so has surely been a traumatic event for many of us, causing a great deal of emotional angst if not actual financial hardship. I guess it is only natural to feel some shame and self-doubt at having ended up seeming to be the "greater fool," and to feel resentment and anger towards those we listened to for guidance. As for myself, I certainly experienced shocked disbelief while watching profits evaporate and losses mount. And I had some periods of real anxiety about just how bad things might get.

Like many others, I have done a lot of reflection and tried to make as much of a learning experience out of it as I can. However, despite all the commentary in the press, conveniently based on hindsight, about the irrationality of the market's previous enthusiasm for technology stocks, I really don't fault myself or others. The best technology companies like Seibel, Network Appliance, Juniper, JDS Uniphase, etc, that were continually discussed on this board, are solid, well-run companies with very good products. They were establishing good track records, and the prospects for their continued future growth were not illogical. I don't think anyone could have forseen the abruptness and the severity of the capital spending recession that tripped us up.

As for the stocks having been "ridiculously" overvalued, they had been apparently overvalued for years, and many non-tech stocks were equally overvalued. As I look back, I still can't see any specific point in time when I can say "I should have known better." Yes, at the end of 1999 and the beginning of 2000 I did think that stock prices had "gotten ahead of themselves." And, yes, I did expect that there would be a "correction" on the order of 20-30%, with 50% as the worst case scenario. But I never would have predicted that the NASDAQ would fall more than 70%. Even the most supposedly undervalued stocks, like SSTI with a PE under 10, got massacred.

I don't think there was any way to be a growth stock investor without having suffered over the past year. I feel fairly certain that great investors like Phillip Fisher and Peter Lynch would have also suffered massive losses, along with the rest of us. I think that anyone who reaped the rewards of the long, great bull markets of the '80's and '90's, yet sold out early in this bear market, was more lucky than a genius. I greatly admire Warren Buffet (and he sure does look smart, once again), but I still think there is good money to be made investing in outstanding technology companies.

So as a result of the recent "tech crash" I am now much more interested in valuation issues, and will be much more careful to try and not pay too much to own even the best growth stocks. I notice that a lot of other people have developed an avid interest in technical analysis and chart-reading. I surely don't want to begin an argument about it, but I have read almost all the books about technical analysis and tried for many years to use it, but can't say I ever got much benefit from it. It was sometimes effective in reducing my losses, but it always inevitably reduced my profits as well.

As I look back at the past very distressing months, I have come to the conclusion that, at least for myself, the "tech crash" was largely an unpredictable event (except in hindsight), at least in its suddeness and severity. These things happen. I see no point in berating myself for being a "greater fool," too stupid to see the future correctly, and certainly none in being angry at anyone else.