There was a bubble. It burst. But the boom and the bust led to a familiar path--a return to normalcy. In normal times, product cycles matter. Profits and valuation do, too. Stock picking is paramount. So is remembering to sell. In normal times, technology investing is tough--like it's supposed to be. And opportunity knocks for investors who don't simply hide out in bellwether technology issues.

As technology business fundamentals deteriorated from early 2000 to late 2002 and the Nasdaq collapsed, the prevailing attitude toward risk made a 180-degree shift. In the midst of the mania, investors were rewarded for risk-taking. In its aftermath, the once-pervasive investor alarm at the thought of not participating has been replaced by a dread of "exposure." By year-end 2002, equity holdings reflected the greatest aversion to risk in a generation.

Ironically, portfolio managers have put themselves at risk by being so risk-averse. In doing so, they chance being inadequately exposed to technology stocks and underperforming their portfolio benchmarks. That will change. Over the course of 2003, the appetite for risk will likely regress to the mean, creating upside for those who shun "chicken" tech stocks.

Finance 101 teaches that while the expected return of risky assets is more volatile than that of less risky assets, riskier assets tend to have higher returns in the long term. But most buy-and-hold tech investors who have outperformed buy-and-hold S&P 500 investors placed their bets prior to mid-1994. The shift in risk tolerance not only caused tech stocks to lose ground, it caused tech investors to lose eight years of outperformance relative to the broader market.

Other distortions have cropped up as well. Since the peak, the tech industry's representation in the S&P 500 has declined from 35 percent to 15 percent. Investors hoping to "participate" in technology have crowded into a small group of "safe" names. Entering 2003, more than 40 percent of the market capitalization of the largest 100 tech stocks was concentrated in just five mega-cap issues: Cisco Systems, Dell Computer, Microsoft, Oracle, and IBM (Nasdaq: CSCO, DELL, MSFT, ORCL; NYSE: IBM).

What do these companies have in common, besides being big, liquid, household names that have managed to make money even in bad times? None of them have business models that will experience material leverage in a recovery. In effect, the concentration in the Quality Five represents a collective bet against a recovery. The last time these stocks so dominated investor holdings was in October 1998, in the midst of another market characterized by flight-to-quality excesses that were soon rectified.

The search for safety has not just inflated the relative value of the Quality Five. The largest 15 tech companies account for 80 percent of the market value of the 77 stocks in the S&P Technology Index. This suggests that investors have a greater chance of beating the market by owning the 62 smaller stocks, which normally account for close to 35 percent of index value.

In the late stages of the bust, relative market cap shifted: from companies with operating leverage (i.e., small top-line changes mean big bottom-line results) to those with minimal operating leverage in a recovery (the Quality Five); from small, medium, and large tech companies to very large tech corporations; and from companies associated with change-the- business new project spending to those associated with run-the-business infrastructure spending.

The first shift above is the most likely to be corrected in 2003. If relative market capitalization in technology shifts back to companies with operating leverage, the likely winners will include LSI Logic, Micron Technology, National Semiconductor, Taiwan Semiconductor Manufacturing Company, Teradyne, and other chip companies, as well as Hewlett-Packard, Nokia, Apple Computer, Network Appliance, and select hardware companies (NYSE: LSI, MU, NSM, TSM, TER, HPQ, NOK; Nasdaq: AAPL, NTAP).

Arnie Berman is chief technology strategist at the SoundView Technology Group. He does not have a position in any of the securities mentioned in this article.