(MONEY Magazine) – Everybody remembers that the technology-stock bubble peaked in March 2000. But go back a few months, to the fourth quarter of 1999, and that's where you'll find madness completely taking over the market. AOL's stock price doubled. Qualcomm's tripled. Mutual funds specializing in technology racked up triple-digit returns for the year. Six months after it first sold stock to the public, Ariba, a small, profitless software maker, was worth as much as 3M. Fast-forward five years. Ariba shares, which once changed hands for more than $300, now go for nine bucks and change, and the average tech mutual fund has turned $1,000 into $527.

Those are sobering numbers, and you may have all too much firsthand experience with them. But lately the news out of Techville is starting to sound good. Google, some missteps aside, raised $1.7 billion in an initial public offering of stock; Microsoft plans to buy back $30 billion worth of its shares, showing that the software giant is confident about its future; and a judge has decided to let Oracle pursue its unsolicited takeover bid of PeopleSoft, which could lead to a wave of consolidation that will push up stock valuations. Consumer technology, meanwhile, is smoking: iPods, digital cameras, camera phones and HDTVs are flying off the shelves. And all this comes at a time when stock valuations seem reasonable. Merrill Lynch's Steve Milunovich figures that the average technology company's profits should increase 45% this year, flirting with levels not seen since the peak. Tech stocks, meanwhile, trade at a price-to-earnings ratio—how much an investor pays for each $1 of per-share earnings—60% below that of 2000.

Strong business fundamentals and fallen share prices—sounds like a screaming buy, right? But before you log in to your brokerage account, you need to understand that while tech may finally look safe, it's not. Here are four good reasons to ignore this sector's siren song.

YOU OVERPAY Long before the madness set in, it was accepted wisdom that any adherent of growth investing—an investor who seeks out companies that will rapidly increase their earnings—had to be in tech. After all, the sector grew from a handful of electronics companies in the mid-20th century to account for 14% of U.S. economic output by 2000. Why wouldn't you want to invest in such a story? "Anything in technology in the past 30 to 40 years has been a growing market," notes Vincent Gallagher, portfolio manager with Needham & Co.

The problem is, you almost always pay too much for such growth. In his upcoming book, The Future for Investors, Wharton professor Jeremy Siegel argues that "growth itself is an investment trap, luring us into overpriced stocks and overly competitive industries." Nowhere is this more true than in tech. Siegel found that if you compared the performance of technology stocks that have been in the S&P 500 with that of all 500 stocks that made up the original index in 1957, the old-timers did better.

Siegel also looked at two original S&P components—IBM and Standard Oil of New Jersey (which became ExxonMobil)—from 1950 to 2003. He found that while IBM recorded far better profit rates and sales growth than ExxonMobil, over the course of 53 years a stake in the oil company grew to be 25% greater than an equal sum invested in IBM if dividends from both stocks were reinvested. Why? Because over that time IBM shares went for 26 times earnings, twice the level of Standard Oil's, so the dividends of IBM bought far fewer new shares of stock on which to earn more dividends. "If growth is superior, there's no price too high, right?" says Siegel. "But price is a severely limiting factor in terms of performance and return." The lesson is that even if you bet on the right company, like IBM in the 1950s, the price you pay matters. And tech is still much more expensive than other market sectors. The typical stock in the S&P 500 now goes for 16 times 2005's expected per-share earnings; investors are paying 25 times earnings for the average tech stock, a 55% premium.

Short-term blips notwithstanding, stock returns tend to track earnings growth. So tech earnings have to keep increasing much faster than the average stock or tomorrow's buyers won't be willing to pay the same kind of premium.

TECH IS SLOWING DOWN And it sure looks like the pace of the industry's growth is beginning to ebb. Yes, tech earnings and revenue will grow rapidly this year, and maybe next, because capital spending has been in a funk for four years. Over the long run, however, says Sanford C. Bernstein chief investment strategist and resident tech expert Vadim Zlotnikov, revenue in the sector will grow about as fast as the economy, 3% or so after inflation. That makes sense, given how big a part of the economy tech is. If tech revenue is growing only as quickly as that of other sectors, it seems unlikely that technology companies will be able to increase earnings much faster than other businesses. So you'll be paying above-average prices for earnings growth that will likely be merely average in the future.

RISK OUTWEIGHS RETURNS Oh, and you'll be taking on above-average risk too. A study conducted by German asset management firm Cominvest that tracked 18 sectors between 1993 and 2000 found that while the tech sector indeed recorded the highest return—after all, this was the time when the tech-heavy Nasdaq went up fourfold—it did so with a greater level of volatility than any other sector. This means that even when tech was king, stock prices in the group bounced up and down wildly. Even if you intend to buy and hold, that kind of stomach-churning ride can be hard to take. "Most of the portfolios I look over and manage, that fact alone results in underweighting tech," says Jon M. Duncan, a certified financial planner in Tacoma, Wash.

YOU ALREADY OWN THIS STUFF Even if tech enters into another '90s-like golden era of growth, you've probably got sufficient exposure to capture a lot of the resulting stock gains without taking a huge flier. If all you own is an S&P 500 index fund, you've got about 15% of your money in technology stocks. Plus, nearly half of general stock funds have an outsize holding in the sector, according to fund tracker Lipper. That argues, if anything, that you should underweight technology in future investing choices.

There may come a time when tech stocks will really be great buys again. But Wharton's Siegel argues that it's happened only once before, in the early 1990s. At that time the average tech stock sold at a valuation slightly less than the average stock in the S&P 500. Should similar circumstances arise again, jumping in would likely be an act of genius, not madness. Buying now isn't exactly crazy, but it may be more reckless than you thought.