Tech bubble: this time it’s different – Harvey Jones


Few IFAs who were advising clients during the boom will forget the extremes of euphoria and despair it generated.

Many will have been besieged by investors begging them to put their money into runaway funds such as Aberdeen Technology, then cursing them when the bubble burst.

The question many investors are asking now is whether we are about to go through the whole thing all over again.

Doom and dust
The technology boom saw companies that had never made a profit suddenly valued at hundreds of millions of dollars.

Their share prices doubled, tripled or quadrupled in weeks or even days, driving up the NASDAQ index from around 1,000 points in 1995 to a peak 5,132 in March 2000.

UK fund manager Tony Dye was a rare lone voice of dissension, shunning tech stocks as overvalued, and was labelled “Dr Doom” for his trouble.

He was proven correct when the bubble burst in March 2000. Unfortunately, he had been sacked in February. Who said timing was everything?

Down in flames
The crash wiped more than $1 trillion off global stock markets after investors lost their nerve and venture capital dried up.

Companies worth billions at their initial public offering (IPO) were suddenly worth zilch. In the US, lost $300 million, while online UK fashion retailer burned through $135 million in 18 months.

Amazon’s stock plunged from $107 to just $7, but it survived, as did eBay. Within a year, the world was in recession.

Boom and gloom
Now technology is booming again, with the S&P 500 tech sector this year’s top performer growing almost 25%.

Facebook, Apple, Netflix, Google and Microsoft have added more than $600 billion of market capitalisation this year, the equivalent GDP of Hong Kong and South Africa combined.

This tech surge even has its own Dr Doom, Marc Faber, editor of The Gloom, Boom & Doom Report, who has warned that the eight-year bull market is being driven by a few tech stocks and share prices could fall 40 per cent.

However, I don’t see a repeat of March 2000.

Big money
First, the big US-based global internet companies now generate massive revenues, with Apple recently posting second-quarter revenues of $52.9 billion, beating Amazon’s first quarter revenues of $35.7 billion.

Before, super-revenues like these were only projections, now they are money in the bank.

There is also a wall of buyers looking to take advantage of any slippage, as we saw in June, after tech stocks briefly fell back on overvaluation warnings by Goldman Sachs chief investment officer Robert Bouroujerdi. They recovered all their losses were rising within days.

In a low growth world, tech stocks are one of the few reliable sources of excitement. They will no doubt slip at some point, but don’t panic, this time it really is different, very different.

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