Since the infamous “dot com” meltdown nearly two decades ago, people have tended to question any sort of extended run-up in technology-sector stocks. Stephen Dover, executive vice president and head of equities at Franklin Templeton Investments and chief investment officer, Templeton Emerging Markets, recently recorded a podcast centered on the theme of technology and how investors’ might view the sector. In this new podcast, he explains why he thinks the situation today is very different from the dot com meltdown.

Here are some highlights:

  • Probably the biggest difference in regard to technology today is the idea of disruption—for example, using the Internet to disrupt taxi service, retail or communications. And, tech companies today actually have cash flow and earnings. They don’t look greatly overvalued like they did at the height of the tech bubble in the early 2000s because of this.
  • Living in a world in which we have a lot of money supply and where we have fairly low interest rates means valuations for earnings streams are worth more than they would have been in the past. That’s probably the primary driver for tech stocks.
  • Ultimately as an investor, when one is trying to decide whether to stay in stocks for a long period of time, one has to consider how these companies will continue to make money. Very broadly, the way they’re going to continue making money is for productivity to increase, and productivity only increases when there’s reinvestment.
  • A benign market can continue that way for a long time. The US economy has had one of the longest recoveries it has ever had, but the recovery has been very weak following the 2007-2009 global financial crisis. So there is some argument that a weaker recovery can last a longer time.
  • Investors are pricing in a very positive environment for stocks, but there are always unexpected events that could occur to change the outlook. And if earnings don’t keep up, or if interest rates don’t stay low, then there is a possibility of a correction, perhaps even severe correction. That shouldn’t really disturb long-term investors.
  • In many cases a company’s management has been the driver of its success versus its peers. That’s really hard for an individual investor to assess, and we spend a lot of time trying to do that.

The full transcript of the podcast follows.

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Kristine Hurley: First, for our listeners who don’t know, tell us a little bit about yourself?

Stephen Dover: Two things that might be interesting. First of all, I was raised on a ranch that had been homesteaded by my great grandfather in Montana. So people who know me at all probably don’t know that as my background and that’s been one of the things that has been formative to me. Being a rancher’s son and a schoolteacher’s son, I have always looked at investment in the sense of, those were the type of people that I’m investing for, and I take that very seriously.

And the other very formative thing for me is I was one of the first Americans to study in China in the very early 80s and at that time, [China] was [considered] Third World. I was ironically studying Marxist economics, which hasn’t been all that helpful, but it gave me different perspective. So I think that those two things combined have really been what formed me and kind of put me where I’m at this point.

Kristine Hurley: That’s a fascinating foundation and from there, how have you ended up doing what you are today?