The DotCom Bubble in California s1150010 Kazuma Arimori
Contents Dot-com bubble Bubble growth Soaring stocks What was the Dot-com bubble Free spending The bubble bursts Aftermath Reference
What was the Dot-com bubbleThe dot-com bubble was a stock market bubble whichpopped to near-devastating effect in 2001. It was poweredby the rise of Internet sites and the tech industry ingeneral, and many of these companies went under orlearned some valuable lessons when the bubble finallyburst. Many investors lost substantial sums of money onthe dot-com bubble, helping to trigger a mild economicrecession in the early 2000s.
Dot-com bubbleThe "dot-com bubble" was a speculative bubble coveringroughly 1995–2000 (with a climax on March 10, 2000with the NASDAQ peaking at 5132.52 in intraday tradingbefore closing at 5048.62) during which stock markets inindustrialized nations saw their equity value rise rapidlyfrom growth in the more recent Internet sector and relatedfields.
Bubble growthVenture capitalists saw record-setting growth as dot-comcompanies experienced meteoric rises in their stock pricesand therefore moved faster and with less caution thanusual, choosing to mitigate the risk by starting manycontenders and letting the market decide which wouldsucceed.This combined with a period of relative wealth,with many ordinary people with spare cash investing andday-trading, which caused a lot of money to chase theavailable investment opportunities.
Soaring stocksThe term may be used with certainty only in retrospectwhen share prices have since crashed. A bubble occurswhen speculators note the fast increase in value anddecide to buy in anticipationof further rises, rather than because the shares areundervalued. Typically many companies thus becomegrossly overvalued. When the bubble "bursts," the shareprices fall dramatically, and many companies go out ofbusiness.
Free spendingAccording to dot-com theory, an Internet companyssurvival depended on expanding its customer base asrapidly as possible, even if it produced large annuallosses. For instance, Google and Amazon did not see anyprofit in their first years. Amazon was spending onexpanding customer base and alerting people to itsexistence and Google was busy spending on creating morepowerful machine capacity to serve its expanding searchengine.
The bubble burstsThe bursting of the bubble may also have been related tothe poor results of Internet retailers following the 1999Christmas season.This was the first unequivocal andpublic evidence that the "get-rich-quick" Internet strategywas flawed for most companies. These retailers resultswere made public in March when annual and quarterlyreports of public firms were released.
AftermathMore in-depth analysis shows that 50% of the dot-comscompanies survived through 2004. With this, it is safe toassume that the assets lost from the Stock Market do notdirectly link to the closing of firms. More importantly,however, it can be concluded that even companies whowere categorized as the "small players" were adequateenough to endure the destruction of the financial marketduring 2000-2002.