(FORTUNE Magazine) – Silly me for thinking fundamentals mattered. This past February, just as tech stocks were hovering above their October 2002 lows, I wrote that it still wasn't safe to buy back in. What could I possibly have been thinking? Actually, I was just trying to apply logic, which oddly enough seems the surest way not to make money these days.

After all, despite the hype, the corporate outlook for tech spending at the time was muted at best. Much of the demand was simply to refill depleted inventory pipelines. And much of what was selling to consumers was at such a discount that it was clear nobody was making a lot of money. That trend has certainly been borne out. Laptop-giant Toshiba recently blamed its tepid sales figures in the second quarter on "severe price erosion."

In retrospect, about the only truly wise thing I said was that tech stocks had done so poorly that a contrarian might use the weakness alone as a reason to buy. With the Philadelphia Stock Exchange semiconductor index (SOXX) subsequently up 43%, a purchase right then would look prescient today. So what if tech stocks, by almost any measure, were already considered overvalued relative to the S&P 500--even at what then seemed to be ridiculously low prices?

The irrationality of it all is enough to send this columnist to a shrink. How could I have been so wrong? "Your mistake," says psychologist and investment advisor Phil DeMuth, "was that you promoted your analysis into an expectation. If the fundamentals are lousy, the stocks can't possibly go up, right?" (Well, yeah, doc. Right.) DeMuth recently co-wrote a book with TV personality/writer/economist Ben Stein called Yes, You Can Time the Market. DeMuth says that, after a review of 100 years of stock market data, he and Stein found that "the market can be completely psychotic." And while fundamentals do win out in the end, he says, "it can take years for the signal to filter through the noise." (Now you tell me!) Until then, DeMuth counsels, think of the stock market as a "high school popularity contest where virtue is overlooked and being cool wins."

Nothing, of course, is cooler right now--no matter what the valuation--than tech. Which is why, as crummy as the fundamentals may be, many of these stocks love to defy logic. Chip equipment maker Applied Materials (AMAT, $20) trades at 251 times trailing 12-month earnings and 6.3 times sales, even though sales growth is stagnant and the company hasn't made money for two quarters. Memory maker Micron Technology (MU, $15) trades at three times sales, which fell by 5% last quarter. Intel (INTC, $25) is the only company in the group to show real signs of life. But why would you pay 46 times earnings for a company whose earnings per share last quarter were lower than the same quarter five years ago, before the bubble? These stocks generally trade now at a higher valuation, without greater profits, than they did back in 1998. That's because chip stocks are the "trading vehicles of the day," says Fred Hickey, the editor of the newsletter High-Tech Strategist, who is currently bearish on the sector. They're so cool, according to Hickey, that at the end of June the SOXX was trading at 60 times its earnings; that's triple its average price/earnings multiple from 1989 to 1998.

Yet for all the high prices, and after so many forecasts of a second-half recovery, tech company after tech company has not only reported disappointing results but also warned that business remains challenging. Anixter International (AXE, $22), whose 185,000 electrical and electronic cable and wire products go in everything from PCs to computer networks, went so far as to say in its recent earnings report that "while some recent analyst and media reports have commented on an improving economic environment, we have not yet seen a significant pickup in larger capital-spending projects across a broad portion of our customer base."

Even thriving tech companies aren't necessarily safe investments now, if you're thinking rationally. Take Sandisk (SNDK, $57), which makes memory components for digital cameras. (Talk about being in the right place at the right time!) Sandisk's earnings have more than quadrupled since early this year, as has its stock. It's one of the few tech names that genuinely deserves some of its hype. However, competitors are starting to breathe down its neck, including Samsung, one of its suppliers. In the meantime, traders and momentum investors are swarming in. They should enjoy the fun while it lasts. DeMuth, the psychologist, warns, "Weak-minded people who missed getting wiped out in 1929 got another chance [when the market bottomed] in 1933--and got lured in. In the end, investing is more Darwin than Freud." Maybe. But if logic doesn't start to take hold soon, I'm going to end up on the couch for good.

Herb Greenberg is a senior columnist for TheStreet.com. Questions? Comments? Contact him by e-mail at herb.greenberg@thestreet.com.