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Risks From the ‘Mindless Buying’ of Tech Stocks

Jul 10, 2017

Professional stock-market investors are complaining about "mindless buying," of tech stocks, and I’m having a sense of déjà vu.

I've been covering technology stocks for precisely 20 years now, having come West in 1997 to follow what became known as the dot-com bubble for The San Jose Mercury News. The grizzled veterans of investing always have ways of expressing their disdain for the rubes who buy tech stocks at inflated values. During the bubble the savants on CNBC would talk about "panicked buying." Later the expression FOMO-fear of missing out-gained currency.

The concern is similar but different these days. It's not merely that companies like Amazon (amzn) and Netflix (nflx) are grossly overvalued by any traditional metric. (They have been for years.) It's also that investors have so thoroughly lost faith in stock pickers that they've thrown in with index funds and ETFs, which in turn drive investments in the heaviest-weighted stocks in the indexes, including Amazon and Netflix.

Two things are certain here. Passive investing will continue to make fools of the humans, fallible as they (we) are. Intrinsic value will catch up with the high flyers eventually. The reason Amazon and Netflix, for example, persist is that their businesses persist. For every one of them there are 10 Sun Microsystems, Netscapes, EMCs, and so on filling up the dust heap of inflated tech stocks.

Incidentally, at Fortune's Brainstorm Tech conference next week in Aspen we've boldly labeled a panel "The Smart Money Speaks," and it features three accomplished investors (not stock pickers): Kirsten Green of Forerunner Ventures, Anton Levy of General Atlantic, and TPG's David Trujillo. Inflated valuations are certain to be on the agenda.

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I enjoyed this column by Timothy Egan, currently my favorite New York Times columnist, musing about the impact of the iPhone 10 years on. Yes, it is has changed the world. But how much and in what way? Discuss.

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It has come to my attention that the estimable author George Anders will release his next book next month. It's a defense of studying the humanities called You Can Do Anything: The Surprising Power of a 'Useless' Liberal Arts Education. Pre-order a copy here.

Have a good week.

Adam Lashinsky
@adamlashinsky
adam_lashinsky@fortune.com

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