The “Dotcom” bubble and its consequent “bust” was one of the more interesting business phenomena of the 1990s. The 1980’s and ‘90’s was a time of intense innovation within the field of technology. With the rise of computers and increasing technology-literacy, there were a lot more technology-related businesses that popped up during the time. With these businesses, there came certain trends that many businessmen, as well as investors, followed, one of which was the Dotcom bubble.
In the 1990’s, there were a lot of online companies with the domain-extension “.com” that popped up. The VC’s tended to assign a high valuation to them and invest a lot of money in them, in hopes that they would catch some of the massive revenue associated with technology companies at the time. The dotcom bubble marked a time of a huge amount of investment into, as well as a large valuation of, dotcom companies. During this time the NASDAQ index rose to 5,000, which only increased the number of businessmen and companies flocking to take advantage of this trend.
However, in hindsight, the burst of the bubble was very clearly going to happen at some point. Many of these companies did not turn a profit, but the investors generally turned a blind eye to this and continued to invest in these dotcom companies, hoping for them to become profitable at some point. Their ambitious attempt to take advantage of the internet-boom led to a lot of over-valuation as well as crazy amounts of funding from excited investors, both of which led to the burst.
The overconfidence of these investors caused the stock prices of companies to increase rapidly, skyrocketing the market. However, eventually, investors realized that their hopes were misplaced, as many of these companies did not turn a profit. So, just after the NASDAQ index reached its peak around 5000, there was a lot of trouble that happened. Some companies began to go under as they could not survive the large losses that they encountered. In addition, this caused investor confidence to go down, investors selling in a panic, and a bust of the dotcom bubble along with many dotcom companies.
In hindsight, the massive hype and excitement associated with dotcom companies were naturally going to eventually go away. Just like many other trends in the tech industry at the time, the dotcom obsession was not going to be permanent. This type of phenomena is present today as well. With the rise of cryptocurrency, the over-excitement is leading a lot of hype around it. However, there are many people believe that it is just another dotcom bubble waiting to happen, showing that the phenomena of the ‘90’s can certainly happen today as well.
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This was a great explanation of the dotcom bubble that affected the stock market so badly. I was curious as to if there have been any other bubbles that have affected the stock market like this one did, and I found that Alan Greenspan, the man who coined "irrational exuberance" to describe the dotcom bubble, believes we are in another bubble again now. Greenspan believes that the rapidly climbing stock and bond markets indicate that both are in a bubble that will if unchecked will create a financial crisis.
ReplyDeletehttp://money.cnn.com/2018/01/31/investing/alan-greenspan-bubble-stocks-bonds/index.html
Great job on this post! The dotcom bubble is certainly an interesting topic. It seems kind of absurd that people would invest such large amounts of money in companies that had no chance of success. Investors lost a total of $5 trillion once the market crashed. In order to prevent another bubble burst, it's important for investors to remember that popularity does not equal profit. All of these dotcom businesses were extremely popular, but they weren't making any money.
ReplyDeletehttps://www.moneycrashers.com/dot-com-bubble-burst/