One great example of this extreme level of risk aversion can be seen when comparing the valuations of a historically “certain” sector like Utilities to a historically “uncertain” sector like Technology.  Today, investors are paying more for the future earnings of the average utility company (17.7x) than they are willing to pay for the future earnings of the average technology company (17.6x) despite the fact that the average tech company has grown its earnings nearly four times faster (11%) than the average utility (3%) over the past ten years.  Furthermore, unlike their technology peers, the future earnings growth for many utilities is limited by their geographic reach and the rates they are allowed to change, both of which are set by Federal and state regulators.  

David Fuller's view

Here is a PDF of the RiverFront report.

This is an extremely interesting point, although I am not sure what an average technology company is.  Perhaps that was part of the problem, as cautious investors were uncertain as to how technology companies should be valued.  Also, the big winners among tech companies were fashionable momentum plays with nosebleed valuations, while the laggards underperformed for lengthy periods.  I also think it can take up to a generation for once burned investors to forget the trauma of the 2000 collapse in tech shares.

Market history can provide us with some useful lessons regarding new technologies.  For instance, during the 1990s, new tech companies were springing up overnight like mushrooms.  They had techie names, often sketchy business plans and were floated for many millions.  Their appeal was the ‘new economy’ label which sounded so much more exciting than the ‘old economy’.  Many of these companies sold at infinity multiples, as they had no earnings.  

The tech bubble burst in 2000 and a number of these companies disappeared.  The survivors went into lengthy convalescence before staging partial recoveries some six to seven years later, only to be knocked down again by the crash of 2008. Today, many of the 1990s tech companies have over a generation of development and earnings growth.  Household name older tech shares have a history of evolving and reinventing themselves.  In an era of accelerating technological innovation, a number of tech shares are likely to remain market leaders.