Making Money in Technology
After the Bubble, page 28
Post-Bubble Market Psychology
During the technology bubble, Alan Greenspan accused the markets of “irrational exuberance.” The pendulum
has swung to the other extreme, and the psychology about some technology stocks could well be described as
“irrational pessimism.”
It’s important for the rational investor to stand aloof from mass sentiment. As Baron Rothschild
supposedly said, you want to buy when blood is running in the streets. Conversely, you want to sell
when everyone is completely complacent. In other words, market psychology is—if anything—a contrarian
indicator.
As a technology investor, the most helpful thing you can do is learn more about technology.
This equips you to make your own assessments about true value.
Many times, technology segments move in lockstep in the market—even when this makes no sense. For example,
it’s often the case that the semiconductor group moves together. But Intel (NASDAQ: INTC) makes PC
microprocessors. Its business has little to do with that of PMC-Sierra (NASDAQ: PMCS). PMC-Sierra makes
communications chips for high-end networks. Different forces drive these two businesses. If you understand
this, you can take advantage of pricing irrationality that lockstep movement has created.
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