This is a repost from my Quora answer.
Will there be a tech sector crash in the near future?
There is always a chance for a crash in any sector and that includes tech.
It all depends on the hype cycle. When hype builds up like crazy and people do irrational things like putting lots of money without actual justification of the value they are putting in, then it’s a sign of a coming bubble. Take the first tech dot com bubble for instance, people were dumping in lots of cash in companies that didn’t actually make money or generate real value. Some people are saying the same thing for Facebook with the recent valuation of the company despite the difference in their actual revenues.
The people in the first bubble put in their money because it was a ‘Gold Rush’. The value of these companies in the first bubble were so high because the hype pushes the demand so high, that it seems like the high price became justified as well. People just rush in to get a piece of the action without thinking the consequences. And the same thing happen to the sub prime problem, people rushing in without thinking long-term sustainable value.
Unfortunately, these things do happen in a cycle whether you like it or not. When things go bust, everything gets reset and you get to start fresh. People do learn from mistakes but they end up falling for new mistakes. The next crash will appear like a surprise to most people but the insiders will probably know it’s coming if things do end up the way they do. Eventually, you just have to make the best of the situation. A good investor makes money both in good times and bad times, doesn’t matter as long as you are careful with your money.