TheStreet.com: Just as investors got burned by the bursting of the Internet and technology bubble last year, what are some of the things that could fool investors now?

John Nofsinger: There are many people who are still heavily invested in tech and think that it's going to rebound. This is more wishful thinking than analysis. They don't want to admit that it's over and they lost a lot of money.

Other people have had the opposite reaction. They've totally gotten out of stocks. A lot of the people who got into stocks in the last few years were under the impression that this was easy, that you could throw money at a tech firm and that it would double it for you and spit it back at you. That, of course, is not how this process works. It's much harder than that.

Then there might be those who try and chase what's doing well this year -- the value, REIT and gold funds that have been doing well this year. Just like the technology bubble, the same thing could happen with these sectors. There will be those who try and chase the recent winners.

TheStreet.com: What lessons should investors have learned from the tech run-up?

John Nofsinger: That they got too carried away about the tech industry and that they have got to get better diversified. That doesn't mean getting out of tech totally, but it doesn't mean remaining heavily invested in tech, either. Technology should have its proper allocation in our portfolios.

People really need to be fully diversified. That's something that's mentioned a lot, but people tend to ignore it, and they get carried away in whatever's doing best, and they start tilting their portfolio into that.

But I do think there's one lesson that people have learned, and that is not to put so much money into untested companies and to take on so much risk. People were throwing money at IPOs where the companies had either almost no sales, or more likely, millions of dollars of losses. The IPO market has pretty much dried up because people have learned not to do that. And now the IPOs that are successful are those that are well-established businesses, not fly-by-night start-ups.

TheStreet.com: What do you think happened to cause this technology run-up, and is there a possibility that the same thing could happen again, perhaps in another sector?

John Nofsinger: Several things contributed to it. One was a very good economy which provided a lot of disposable income to people, and so there were a lot of investors who were coming into the market with new money. At the same time, the Internet was growing, and people in their own lives could see themselves using the Internet and other technological tools more in their lives. Combined, it just sort of got out of control as investors who didn't know a lot about the investment process, or valuing a company, were investing on the story about the company. And so the mania evolved.

There's definitely a chance that this could happen again. If you go back 10 years, this was happening with the biotech companies. If you replace Cisco (CSCO:Nasdaq - news - commentary) with Amgen (AMGN:Nasdaq - news - commentary), it was almost exactly the same 10 years ago, although it didn't get as far along. The 1990-91 recession cut that off a little quicker than the Internet technology bubble because we had a record-length strong economy.

I don't know what the next run-up could be, but there are some very exciting things going on in the health care industry that could possibly cure diseases, with the stem-cell research. There's the genome project that could revolutionize a lot of things. So there are investment areas that people could become a little irrationally exuberant about.

TheStreet.com: A main point in your book is that investors are generally overconfident. Are there any overconfident investors at this point, though?

John Nofsinger: In today's economy, overconfidence is probably not one of the biases that are prevalent. [Laughs.] Overconfidence is something that's learned. You buy a few stocks, the price goes up, and you attribute that good performance to your great stock-picking skills and you learn to be overconfident.

Fear is one of the overriding emotions for investors today. Many investors have gotten out of the market and are afraid to do anything. Another important emotion right now is regret. A lot of people regret that their portfolios were overinvested in the Internet and technology industries.

And a lot of investors are tuning things out. They know they've lost money, but they don't want to deal with it. If you asked an investor at the end of 1999 what kind of a return they got, a lot of those investors could tell you their returns very accurately. You ask investors what they've earned last year or this year, and it's a very vague answer because they don't know, and they don't want to know.

TheStreet.com: What would you advise an investor to do now to improve his or her situation? Would it be a good idea for an investor to hire a financial adviser?

John Nofsinger: There are several things an investor can do right now. One of the important things is not to overreact by getting out of stocks, or even the technology industry, entirely. Likewise, investors shouldn't take on a lot of risk in order to get even again.

The proper thing to do is to use this time right now to reassess what their portfolios should look like, what stocks they should own, how much of that should be in technology or value or whatever. Investors must be well-diversified. This would be the time to do that.

Financial advisers can be very good at helping you monitor your own investment psychology and putting some controls on that. But you need to talk to your adviser about that because some advisers are just as susceptible to their psychological biases as you are. What you need to look for in a financial adviser is someone who has a quantitative investment strategy, be it momentum, value or whatever. They must look for specific quantitative criteria, because that helps you overcome a lot of the biases. That will help them overcome their biases and help you overcome your biases.

TheStreet.com: One of the other major points in your book is that investors are overwhelmed with too much information. What advice would you give people for sifting through this information?

John Nofsinger: Look for the information that you know how to interpret. Of course, what that means is, you need to know a little bit about stock valuation. One of the problems that led to the technology bubble is that people were ignoring the valuations of stocks.