Are We Heading For Another Technology Stock Crash?

Technology stocks are falling. Choose your targets wisely, says Harvey Jones.

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Here we go again. It looks like we are heading for a rehash of the technology stock boom and bust, or so the headlines would have you believe. 

Is history really repeating itself?

My Aberdeen Anguish

I am old enough to remember the last tech stock bubble in March 2000, and the frenzy that gripped markets then, as investors chased spiralling dotcom valuations higher and higher. 

In fact, it was my formative investment experience.

I was daft enough to invest in the soaraway Aberdeen Technology fund, two weeks before the bubble burst. For diversification, I invested in Aberdeen European Technology. 

I lost thousands. Others lost millions. 

The dotcom boom and bust wiped out around $5 trillion of stock market value.

Learning Curveball

It was a crazy time. Online fashion retailer burned through $188 million in six months, then crashed. Long-distance internet and telephony service WorldCom went bust in 2002 amid fraud allegations, the third biggest corporate insolvency in US history. 

Mattel bought The Learning Company in 1999 for $3.5 billion. Next year, it sold for just $27.3 million. was put down.

stock exchangeJust Eat That!

There are similarities today. I hope you didn’t invest in online takeaway service Just Eat, whose share price peaked at 290p on IPO day earlier this month.

Today it is worth 229p.

Or online white goods retailer, which soared 44% above its offer price on the first day of trading in February, to 410p, leaving it valued at 200 times profits. Today, it costs 238p.

Fashion site (a name that was always tempting fate) is down from a peak of 70p when it launched on AIM in March, to 47p.

Fever Pitch

It isn’t just the start-ups that are coming unstuck. Facebook is down 15% in the last month. Twitter is down 40%.

Internet video company Netflix and the electric-car manufacturer Tesla have also been punished.

And frankly, some of this is deserved.

Twitter, for example, isn’t expected to turn a profit until 2016. Yet its market valuation topped $40 billion only recently.

Tech IPO fever has struck again.

As Mark Twain said: “History doesn’t repeat itself, but it does rhyme.”

The Best Don’t Burst

What is perhaps more astonishing thing about the dotcom bubble is that so many of todays’ big tech names survived the slaughter, including Amazon, eBay and Yahoo. and are also big business in the US.

Good companies will survive the current meltdown as well.

The froth may have been taken off online grocery delivery business Ocado, ARM Holdings and Rightmove, but these aren’t fragile start-ups.

They are established businesses, with real customers, that make money.

Buying Opportunity Or Threat?

Most of the key lessons I learned about investing came in the wake of the technology slump.

It taught me the danger of following the herd, and failing to diversify.

I learned the misery of investing at the top of the market, and the joys of investing at the bottom.

The slow subsequent recovery taught me the most important lesson of all: stock markets always revive after their short-term seizures.

And those seizures can throw up great buying opportunities, if you choose your targets wisely.

It may soon be time to pick up durable tech stocks while they’re going cheap. 

I’ve been waiting several years for an entry point into microchip maker ARM Holdings, for example. Could this be it?

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey doesn't own any shares mentioned in this article. The Motley Fool owns shares in eBay.

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