IN EARLY 2000, the technology bubble ran out of steam.
Over the following two years, the US technology index fell 83% to a level that was not even breached during the market crash following Lehman’s bankruptcy.
Since then, using the US sector as a proxy for the industry, profits have been growing and the valuations of the companies are now in line with the rest of the stock market.
During the ten years since the dotcom bubble burst, some of the seemingly pie-in-the-sky ideas for new products and services have evolved into gadgets and websites that we use in our everyday life.
The convergence of communications and computing is obvious to anyone who owns an iPhone, but a decade ago it was still a pipe dream.
Broadband was crude and expensive, Wi-Fi was just starting up and no-one expected Apple, which had yet to launch the iPod, to be leading the pack.
Having moved from initials to twee names (PDA, WAP, ADSL, etc, to BlackBerry, Wi-Fi, etc) the advent, and intrusion, of technology into our lives has become commonplace.
So, where do we go from here and what lessons can we learn?
The obvious lesson from the dotcom boom and bust was to take care not to get caught up in the hype, but, being human, we will undoubtedly fall for it again some day.
The next round of hype will probably not be in technology, but in emerging markets – China or maybe mining and commodities.
It may occur in the next two years or ten years from now, but it will happen. The real clue will be that we have once again willingly suspended our disbelief.
As for the question of whether technology stocks should form part of a conservatively run portfolio, in our opinion it should.
Laptops, mobile phones and broadband may be pretty commonplace in the developed world, but the pace of change is accelerating.
The average phone user tends to swap their handset every 12-24 months, and PCs have almost become disposable items.
Growth from the developing world is burgeoning. For instance, Chinese laptop demand grew by 50% in 2010.
More and more, we live part of our life online via emails, Facebook and storage of our precious photos – we now publish on the web snapshots hastily taken, blurry images, often taken on mobile phones, and of such poor photographic merit, they would never have made it into an old-fashioned family album.
Yet all of this data is stored out there online, and we do not spare a thought as to where. However, somewhere, someone is paying for those storage facilities, spending hard-earned cash on buying and maintaining the hardware.
Nor should we ignore the need for the technology sector to make a contribution to lowering carbon emissions.
As an example, LEDs could be the future for both home and commercial light fittings, saving electricity.
Many companies successfully survived the bust, and many others stepped in and took over the mantle of those which did not make it.
These companies are now making profits from trends that ten years ago produced nothing but hot air.
They will certainly grow more quickly than the global economy, but not without some ups and downs.
In time, they will once again become more highly valued than the average company’s shares and reward the patient investor.
John Haynes,
Head of Research,
Rensburg Sheppards
