'The truth is with technology as with anything else caveat emptor applies'

Is investing in technology really yesterday's game or has the market corrected sufficiently to offer real value?

Is investing in technology really yesterday's game or has the market corrected sufficiently to offer real value?

Last week's profits warning from Sema sent shivers down a market that was already pretty rocky.

By the middle of this week the NASDAQ Index, which as I keep reminding everyone is not purely a technology indicator, had lost almost 50 per cent of its value since the beginning of March.

If that isn't a bear market, I do not know what is. The Sema profits warning reinforced the nervous investors' view that they had been misled in the past. The truth is that in technology, as with anything else, caveat emptor applies.

Technology is a big sector. I do not just mean the market value of technology stocks, but the variety of businesses. There is hardware, software, telecommunications companies, businesses that service the financial community et al. Some are having a tough time. Some have seen their share prices savaged for no good reason, providing opportunities for the careful investor.

Take Sema. Its profits warning owed little to downturn in activity. Rather, it showed the company had made a less than adequate job of incorporating the recent acquisition of LHS. So it is management miscalculations that will lead to lower-than-expected profits, not over-optimism in the technology field. Yet shares of comparable companies, such as CMG and Logica, were marked down on the news.

There has been too much hype in such areas as the internet. Fortune magazine conducted a review of dot.com stocks. The types of company they reviewed were Yahoo and AOL. Using such measures as Economic Value Added, they concluded market valuations were insanely optimistic. Earlier this month, following falls of 90 per cent in some of these shares, they repeated the exercise. This time the assessment is merely extremely optimistic.

But demand for technology services is buoyant and growing. There will be winners and it is worth noting the savaging this sector has received has been more selective than the performance of technology funds might seem.

An interesting bell-wether of technology is 3i, the venture capital group. Officially classified as an investment trust, 3i has around half its portfolio in technology-oriented companies.

Many are unquoted, but results published last week show they are still making significant profits on flotation or sale of the businesses they nurture. They are careful investors in technology - that should be the message for private investors too.

Brian Tora is Chairman of the Greig Middleton Asset Allocation Committee