Calm down. Everything may be okay.
I am an economist who has made a modest bundle by trading on tech stocks. Like everyone else, I was scared to death. All of the fuddy-duddies, like Friedman and Fama, tried to scare me to death about the over valued market, but I just went on like a grasshopper singing and dancing while the foresighted ants dropped out of the market and left money on the table.
I watched the fed dump on the market and the bears chortle their way into bankruptcy. I figured 40 million Americans must be doing something right.
I finally figured it out. My expectations as a Cisco (P/E = 100) stockholder and as a nibbler in network startups (P/E =1000 or infinite) were perfectly consistent. Everyone is expecting the same pool of future cashflows, and there is enough for all to be satisisfied, if they are allowed to gobble each other up. When Cisco swallowed Cerent last fall for $7 billion, it kept on going up. The Cerent stockholders were more than satisfied, and so were the Cisco stockholders. Neither stock was overpriced in the opinion of the market (which is, after all, the only one that you can take to the bank.)
I don't think anyone who has invested and held in the major tech stocks over the past ten years has been disappointed, or they have been fantastically unlucky and ill-timed. But there are millions who invested in non-tech stocks who have been slammed. I am willing to predict that most major tech stocks will continue to grow in the coming decades because they invent and sell productivity increasing products, serve new markets, and lower cost of production in many non-tech companies. Similarly, I am willing to predict that non-tech stocks on the average will not grow nearly as much (and maybe not all all) because their markets are more nearly saturated and most of them will need to cut their costs to compete. New techs will have to have some technology that makes them more efficient than the big boys to thrive (and be taken over).
All of this could be stopped, of course, if the fed tries to stop inflation originating in oil and labor shortages by jacking up interest rates and restricting credit enough to cause a general recession. None of this will directly injure the major tech companies --- none of which owe any signficant debts. Their markets are virtually guaranteed to grow eventually. Their earnings are growing rapidly. Their stocks are overvalued which makes them cheap cost-of-capital valuta to buy their overvalued competitors.
For the individual investors, persistence and patience is required. In good times one needs to take profits and cut back on margin and build some cash to buy on pullbacks.
In bad times there is a need to avoid panicking and selling out. There will be pull backs. There will be reluctance to sell off winners. Many will be frozen into overcommitment by overenthusiam in the highs (something for which this thread is notorious). Few will have the strength to survive one or two years of depression (like 1997-1998 in chips).
But if there anything that we can know it is that tech stocks will prevail -- not all of them of course -- and the course will not be steadily up. But as stocks near their trend tops, pull back, a little bit, or sell calls, and be prepared to re-enter at the bottoms of the channel.
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