For example, Mr Shaw said Snapchat’s share price reached $28.84 (£22.69) during its first week of trading and the value of its shares have since fluctuated below and above $20 (£15.74) making it a prime candidate to be a stock that blows the current tech stock bubble.
He said the share price for the instant messaging app soared high with the announcement of a new feature, while it plummeted when this new feature was quickly adopted by rival tech companies such as social media outlet Instagram.
Swift on the heels of Snapchat, rival Instagram added a ‘story’ feature.
Mr Shaw said: “The stock’s fluctuations since its celebrated initial public offering (IPO), forecast a long journey to gain the revenue to support its mega valuation.”
It is anticipated that Alfa Financial Software, a UK firm which provides software for the likes of Barclays and Mercedes, will list the largest technology IPO since 2015 this year.
There is also talk of IPOs for digital media company Buzzfeed and telecommunications company O2.
This IPO activity comes after social media outlet Twitter’s oversubscribed shares lost half their value since going public.
Mr Shaw said: “The dotcom bubble teaches us that the industry is rarely aware of the extent of mania until it is too late, so investors must remain cautious of this trend.
“The degree of influence the internet would project was underestimated back in 2000. We are now in a world of social media and instant communication, a concept we are still exploring.
“Whilst companies like (online marketplace) Amazon have succeeded, many have not.”
Mr Shaw highlighted how in 2000, many people invested in technology as opposed to reliable businesses.
Yet when equity markets soared with technology investment, many were left with companies whose stocks lost up to 99 per cent of their value.
He said during this period investors who stuck with companies seen as traditional or old-fashioned or investment in bonds and property, were doing just fine.
However, Mr Shaw warned currently bond investors should be cautious, for despite their consistent returns during an extraordinarily long bull market, interest rate fluctuations in the US and UK may soon mark a change in this trend.
Mr Shaw recommended positioning in profitable businesses to take advantage of new technologies.
He said: “The 2008 financial crisis, which saw equity, property and bonds crash together, emphasised the corrosive nature of debt.
“This debt crisis alongside the tech mania, should remind equity investors to carefully assess how companies are financed and make sensible decisions.
“This involves an ability to step aside when faced with hype, while looking to selective innovations that use proven technology.”
However Mr Shaw said investors could incorporate a handful of carefully selected companies, without allowing them to dominate the portfolio.
He said: “This approach removes stubbornness in the face of innovation – as equity is a growth asset class after all – whilst mitigating the risk of investment fads.
“The fact that even successful businesses can become caught in a mania is evident in the case of (telecommunication company) Vodafone when its shares peaked at over £4 in 2000, but are just £2 today.
“During this initial tech boom, Sage shares also hit a high at £8, yet despite the increased profits and dividends since, the share price is now £6.70.
“There will be some success from technology investments, but it is now about sourcing the right ones, particularly when it comes to transparency.
“For example, despite the hype and noise about Snapchat, its corporate website is somewhat limited and has no real investor focus – this does not scream reliable investment.
“History teaches us that when faced with innovation, it pays to be highly selective whilst maintaining a diverse portfolio.”
Darius McDermott, managing director of Chelsea Financial Services, noted that on Friday (9 June) there was quite a big fall in share price of some of the big tech names such as Amazon, Google, etc.
The Nasdaq was down a few percentage points while the S&P was flat, which Mr McDermott said signalled a bit of a rotation out of tech stocks.
Mr McDermott said we could see a further correction as the sector is on the expensive side - nowhere near that of the dot.com bubble, but still significantly higher than average.
He said: "Snapchat has caused some concern - not only is it overvalued (some may argue its IPO was only successful as exchange traded funds had to buy into it) but the bigger issue is corporate governance.
“Shareholders have no voting rights so can't influence the company's direction. Investors are therefore only buying the potential for future profits - profits that may or may not materialise.
"This stock example is a sign of a bubble, but it is important to remember that companies like Amazon, Microsoft and Google, while being tech companies, do a lot more. They all have strong networks in other areas so should not be looked at in the same vein as Snapchat, by any means.”
Mr McDermott said ultimately you have to be careful to avoid 'blue sky' companies in this sector, which is why he favoured Axa Framlington Global technology fund.
He said: “The manager makes a concerted effort to avoid these very businesses."
Laith Khalaf, senior analyst at Hargreaves Lansdown, said investors should always be wary of paying over the odds for distant and uncertain earnings streams, which is a perennial feature of the technology sector because of the potential growth that may be realised by the companies within it.
However he agreed with Mr McDermott that it is important not to tar all tech companies with the same brush.
He said: “While a company like Snapchat is a more speculative investment because it’s not expected to make a profit until 2020, Apple posted £45.7bn of earnings in the last financial year.”
emma.hughes@ft.com
