The above chart shows what percentage the technology sector represented in the S&P 500 by year. In most years it ranged from 10-17%. In the late 1990s, the telecom and internet stocks took off, resulting in the sector representing an astounding 35% of the total valuation. Then, in the blink of an eye, the market crashed and stayed depressed for several years. Some equity analysts are now looking at the current technology run with skepticism and caution. The tech sector currently trades at 32X forward earnings estimates, which is very high. What is more troubling is that to hit this aggressive estimate, earnings need to grow at 30% year-over-year when they have averaged only 20% recently. The sector is priced for perfection, and if analyst sentiment shifts, some believe it could lead to a repeat of 2000.

We are bringing this up to reinforce the importance of having a diversified portfolio of equities, bonds, cash, alternative assets and real estate. We wouldn’t suggest anyone have all their assets in multifamily, but it is important to have a meaningful exposure to the asset class due to the uncorrelated nature of the investment and the long-term, strong risk adjusted returns. We also think it is the best asset class in commercial real estate, because at the end of the day, people must live somewhere, though in some cases, you can get by without an office, a storage unit, another store front or a hotel room.