Investors have called their five-year love affair with technology stocks into question over the last 35 days. For this reason, we at Smead Capital Management are calling in John Lennon and Paul McCartney’s beautiful ballad “If I Fell” to help answer the following questions. Should investors continue to fall in love with these glamour growth titans? How have past love affairs with tech ended? Where might the bottom be over the next five years if history is any guide? Lastly, how will agnostic index and ETF investors react if the stocks which made their wealth grow the last five years become a source of financial heartache?

If I fell in love with you
Would you promise to be true
And help me understand
‘Cause I’ve been in love before
And I found that love was more
Than just holding hands¹

In the fall of 2018, technology companies grew to 30% of the S&P 500 Index, when Amazon (AMZN) and Netflix (NFLX) were included. This tied the peak reached at the end of 1999. To say that investors “fell in love” with these stocks would be a severe understatement. Will they “promise to be true” and help investors reach their financial goals? Have these companies helped investors “understand” why they may reward them in the future?

These are important questions to answer, “’cause investors have been in love with tech before” and they found on the downside that “love was more” than “just holding hands.” Today their hands are held by Vanguard, State Street, Charles Schwab and BlackRock, the largest owners of tech-concentrated vehicles. The growth versus value chart below shows the “love before” and how that played out:

Source: Fundstrat August 29, 2018.

It took four years to create a historical extreme in early 2000 and two years to completely crush those who had their hands held on the way down. Doesn’t building the peak in 10 years mean “the pain” will be handed out for five or six years this time?