##Background

  1. Googles’ shares rose 16% on Friday (2015-07-17) after the company said revenue was up 11% from a year earlier.
  2. Netflix rose 18% on Thursday (2015-07-16) after 2nd quarter revenue rose 22%
  3. Amazon announced it’s revenue on Thursday (2015-07-23) had risen 20%, resulting in a record high price on Friday of $580.57.
  4. Facebook is expected to announce its earnings on the 29th of July.
  5. The Nasdaq is up 10% this year, reaching a new record on Friday (2015-07-17).

Looks pretty good for the technology sector. The rest of the sectors ain’t doing so hot though..

##What’s a poor boy to do? The Nasdaq’s rise is a result of the percentage of tech stocks that make up the index. Compare this to the S&P500, which rose 3.3% this year and still remains below highs reached in May. Given approximately 50% of the composition of the Nasdaq index is made up of tech companies while the S&P 500 is made up of ~20% tech stocks, there is evidence of an impending tech bubble for these public stocks. But is it really a bubble?

The evidence to look for lies in the lack of high-achieving performance in the wider economy. Sales and earnings in many sectors of the economy are flat or falling, making investment in tech stocks mroe appealing than they previously (< 2000 A.D.) were.

Many portfolio managers say they are willing to pay such high prices for these tech stocks because their (the managers’) expectations of growth for the tech companies outweighs the up-front costs to owning these shares. Growth is becoming more scarce in the global economy. Quarterly revenue at S&P500 companies is estimated to have dropped 4% from a year ago in the 2nd quarter (via FactSet).

For example, Google shares have been trading at 24.9x last 12 months earnings; Netflix is trading at 257.8x 12 months’ earnings and Facebook is trading at 52.5x.

The wide availability of V.C. funding for smaller, faster-growing companies allows these companies to stay private for far longer. Forcing public investors to push more money into already public stocks, because they have no other outlet for the money they wish to invest in technology. Thus raising the public tech shares even higher.

##So what’s the solution? There is currently no way for the general public to offer investments in to these private, smaller, faster-growing companies. By the time these companies do go public, the opportunity for huge growth has already passed by, and the general public misses out. No true solution exists. The best way to be sure to not lose money is not to bet, but that’s like saying the best way to not die in a car accident is not go outside. I can’t offer a solution but evidence and analysis of a problem could potentially help some others discover a better strategy than the continual bidding up of the same Big Co Tech Stocks.