Last week was disconcerting for many reasons, not the least of which was the 2% drop in the NASDAQ Composite Index that occurred on Thursday and Friday along with a similar sized decline in the major U.S. stock market averages. While much of the blame for the sudden drop was attributed by the mainstream media to escalating hostilities in Russia and the Middle East, a more likely explanation is a spate of recent quarterly earnings reports that suggest the second half of this year may not live up to expectations.

To be clear, tech stocks have been on a nice run lately. Since bottoming out just below 4,000 on April 11^th the NASDAQ Composite Index had climbed to 4,463 by last Wednesday, an increase of 11.5% in just fourteen weeks. It is worth noting that the index did not show a net gain for the year until May 22^nd, which was the last time it opened below its beginning year value of 4,143.

What that means is that all of the net gain in the index for 2014 has taken place over the past ten weeks, most of which occurred within the ninety day window of time between the first set of quarterly earnings reports released in April and the second set released in July. In other words, it is doubtful that international events really had much to do with either reversal of fortune for tech stocks as the stock market was rising rapidly at the same time tensions in Russia and the Middle East were escalating.

The earnings reports released in April were mostly well received, not only beating analysts’ estimates but also containing optimistic “forward looking statements” regarding the remainder of 2014. But as the second round of earnings reports rolled out over the past month, optimism slowly gave way to caution as many companies warned that second-half results were likely to disappoint.

The net result of these conflicting sentiments is widespread confusion over the fair value of most tech stocks. Is Microsoft (NSDQ: MSFT) the $35 stock it appeared to be in 2013, or the $44 stock it has become in 2014? Is Amazon.com (NSDQ: AMZN) the $400 stock it briefly became six months ago, or the $300 stock it appears to now becoming?

In fact, the same type of question could be asked of Apple (NSDQ: AAPL) – $60 or $90; Netflix (NSDQ: NFLX) – $350 or $450; 3D Systems (NSYE: DDD) – $80 or $50; Facebook (NSDQ: FB) – $60 or $75; and Qualcomm (NSDQ: QCOM) – $80 or $70?

That’s why we created an impassive measuring stick for identifying which companies should be able to sustain their higher values and which ones won’t. So far the BiQ and STR have done a very good job of picking the winners while avoiding the losers; our Investments Portfolio has thumped the index, and our Equity Trades Portfolio has already closed out some very profitable short term transactions.

In this type of market the last thing you want to do is chase the high-flying stocks trading at unsustainable multiples; I like Netflix as a company, but trading at 110 times future earnings makes it a difficult stock to own. I’m a regular user of Facebook, but even its recent spike in profitability results in it trading at 44 times future earnings compared to a multiple of 23 for its peer group.

So just when it appears that the smart money has cashed in and left many of these stocks fully valued (or more), a new ETF (exchange traded fund) arrives on the scene designed to mimic the recent portfolio actions of uber-wealthy investors such as Warren Buffett, Carl Icahn, and George Soros. Dubbed the “Direxion iBillionaire ETF” (NSYE: IBLN), this fund will use your money to buy shares in 30 stocks that these stock market gurus have already bought.

If you think about it, that probably isn’t such as great idea. A much better idea would be for you to buy shares in those companies BEFORE they start buying into them, but of course that is much easier said than done. It is very easy to ascertain what stocks these SEC-reporting entities have already bought, albeit at least ninety days in arrears by examining their quarterly filings that list all major recent buy and sell transactions.

You also have to ask yourself this question: if the big guys have already bought in, and now I’ve bought in after them, who else is left to drive the share price even higher from here? In the short run the answer to that question is the companies themselves, as most of them are still executing share repurchase plans that have not been completed.

But when that activity eventually grinds to a halt, someone will be left holding the bag and that will most likely include investors in funds such as this one. Long time investors have witnessed this type of bubble phenomenon before: in 1990 when starting a savings and loan was almost as easy as getting a loan, with a collapse in the commercial real estate market the inevitable result; in 1999 when anyone or anything that could slap a dot.com after its name did so, only to collapse a year later; and in 2007 when anyone who could get into the mortgage business did so, only to leave homeowners and taxpayers footing a very expensive bill to clean up the mess.

My advice? Forego the urge to “follow the leader” by buying into funds such as this one, and instead look for the types of stocks that these legendary investors buy into before everyone else knows about it.

NASDAQ Composite Index:                                                                        

Friday, July 25= 4,449.56                                                         

Year to Date = + 5.1%                                          

Trailing 7 Days = – 2.3%                                       

Trailing 4 Weeks = – 1.5%