QUICK SUMMARY FORMAT

BUBBLE SPOTTING SERIES - 2014

This short presentation on the Dot.Com Bubble forms part

of a larger series of presentations on Market Bubbles

Front page graphic - own

The Microsoft Windows Operating

System ™ (launched in 1985), opened up

new opportunities in personal

computing. This lead to significant

growth in number of PC’s, further

buoyed by internet access in 1992,

which caused pc usage to grow

exponentially.

BACKGROUND

wired.com

During this period, significant

investments were made in the

software development industry,

notably in the usa. Software was seen

a highly profitable investment and

software development companies

were strong performers on the stock

exchange.

wired.com

Hardware manufacturing on the other

hand, was being taken over by Asian

companies who could compete

competitively on price and quality.

wired.com

Many new start-up companies were

formed, buoyed by low interest rates

between 1998–99. Everybody wanted

to be the next Microsoft.

This attracted the attention of

venture capitalists. Their strategy

was to finance, take these start-ups

public and, hopefully, reap massive

profits in the process.

As a result of the economic boom,

Economists started speculating that

the world had entered a “new

economy”, and that “old economy”

concepts like corporate earnings and

other traditional financial criteria was

maybe not as important to internet-

based businesses anymore.

Start-ups were measured on their

burn-rate: how long it would take to

burn through (different rounds of)

seed capital before being profitable,

and on their ability to expand their

customer base (regardless of cost).

Many start-up companies were run by

individuals barely out of college. Many

start-ups (or their management) had

No real Track Record , NO profit

HISTORY to speak of, BUT were raising

millions of Dollars in IPO’s due to

public excitement AND MEDIA HYPE.

Many start-ups went through several

stages of funding before either

turning profitable or finally going

bankrupt.

Between 1996 to 2000, NASDAQ stock

index exploded from 600 to almost

5,000 points. In 1999, there were 457

IPO’s, most of which were internet and

technology related. Of those 457 IPOs,

117 doubled in price on the first day of

trading (due to hype).

Between 1999 and early 2000, the U.S.

Federal Reserve increased interest

rates 6 times in an attempt to cool

down the economy.

On 9 March 2000, the NASDAQ

peaked at 5,048.62,

but from

10 March 2000 proceeded to

drop 10% over the next 10 or so days.

Barron’s magazine shocked the market

by publishing a story (“Burning Up“ MONDAY,

MARCH 20, 2000) that indicated the end was

near -

"During the next 12 months, scores of

highflying Internet upstarts will have

used up all their cash”

In subsequent months, many companies

reported huge losses and some folded

within months of listing. Various

accounting and other irregularities

were identified.

BY 2001 the number of IPOs had slowed

to 76, - none of which doubled on the

first day of trading.

Reality started setting in. Within

months after peaking, Nasdaq lost

78% of its value (top to bottom).

* As per the International monetary

fund - which corresponds with the

value by which American households’

equity holdings had declined (44 %)

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Dot.com bubble

http://www.thebubblebubble.com/dot-com-

bubble/

http://www.investopedia.com/terms/d/dotco

m-bubble.asp

http://www.moneycrashers.com/dot-com-

bubble-burst/

http://www.businessinsider.com/heres-why-

the-dot-com-bubble-began-and-why-it-popped-

2010-12

http://www.scaruffi.com/politics/sv.html

http://www.cnet.com/1990-11136_1-6278387-

1.html

http://www.imf.org/external/np/seminars/e

ng/2012/fincrises/pdf/ch12.pdf

http://www.cnet.com/1990-11136_1-6278387-

1.html

http://www.cnet.com/1990-11136_1-6278387-

1.html

http://thenextweb.com/entrepreneur/2011/1

0/27/17-dot-com-failures-and-their-modern-

counterparts/#!qzNFE

http://en.wikipedia.org/wiki/Dot-com_bubble

Also See

Irrational Exuberance - Robert Shiller

Extraordinary Delusions and the Popular

Madness of Crowds - Charles Mackay

This presentation is provided in the sake of public interest, and has been compiled based on

publically available information sources on the web.

While great care has been taken in the preparation and compilation of information indicated here,

the author does not accept any legal or other liability for any inaccuracy, mistake, misstatement or

any other error of whatsoever nature contained herein.

This presentation is not investment advice, not a solicitation for any type of investment, financial

or otherwise, nor is this presentation an opinion expressed on, nor endorsement of markets,

commodities or investments.

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