These sky-high valuations partly reflected tech companies’ characteristics.
Firms from Alphabet to Zoom tend to have relatively few physical assets that are captured by book value and many intangible ones—such as software and human capital—that are typically not included.
They also tended to be fast growers, meaning that measuring their price against present earnings risked understating future profits.
For this reason, tech stocks appealed more to “growth” investors, who tend to buy companies with rapidly rising profits, than they did to value types.
This means value investors missed out on years of growth, but also dodged the recent rout.
Are tech prices now low enough for them to take a look?
Some stocks, including Amazon and Netflix, remain expensive on favoured measures.
Other smaller ones, including PayPal and Zoom, may attract interest.
So might two giants.
Alphabet, with a price-to-earnings ratio of 17, looks cheaper than most value stocks.
Meta, which currently trades at just nine times earnings and two times book value, might have piqued even Graham’s interest.
Tech investors have long been conscious of having paid a lot for their shares, but hoped these valuations would be justified in the long-run.
The fact that many tech stocks now qualify as value stocks will come as a considerable blow.
Perhaps the idea that value investing and tech stocks are inherently incompatible was simplistic.
Modern value investing is practised by all sorts, including a number of quantitative investors such as Cliff Asness at AQR Capital Management, who crunch vast data sets to compare firms against wide and varied measures of their worth.
Rather than comparing the results with arbitrary criteria across all kinds of firms, they instead tend to compare them within industries.
But one thing remains true regardless of the sophistication of the analysis.
Tech stocks today are much better value than they were at the start of the year.