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This is the Tech Sector of 2012, not of 2000

Twelve years ago, there were no smart phones. No iPad. No Facebook. No Twitter. But there was a frenzy of excitement around the tech sector. In 1999, 289 internet-related companies went public. And on March 19, 2000, the Nasdaq Composite index hit an all-time high of 5,048.62.

Back then tech companies were made of hope and hype, and were mapped out on cocktail napkins. It was great, until it wasn’t.

When the tech bubble burst, the Nasdaq lost 78% of its value over the course of two years, and bottomed out at 1,114.11 on October 9, 2002.

A couple of weeks ago, the Nasdaq broke through 3,000. It mattered in that it was a psychological level, and in that the index hadn’t seen this level since the year the tech bubble burst. And it mattered in that it raised the question: is this like the Nasdaq in 2000?

The answer is, not really. In 2000, the Nasdaq was a symbol of what was wrong with the market. Investors were paying around $180 for every dollar of profit that Nasdaq companies earned. Today valuations are much more reasonable. There is less fluff, and generally speaking, tech companies are less high-flying and more grounded.

The tech sector of 2000 was built of mania and unproven companies. The companies that dominate today’s tech sector are a little more mature. The Nasdaq is a little bit older, and maybe a little bit wiser.

And more to the point, tech is a buy. The sector is up 13.5% so far this year. And the Technology Select Sector SPDR (XLK) fund is a long-term buy, and its positive uptrend is well established.


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