The DotCom Bubble in California s1150027 Wataru Imaizumi
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 bubblewhich popped to near-devastating effect in 2001. Itwas powered by the rise of Internet sites and thetech industry in general, and many of thesecompanies went under or learned some valuablelessons when the bubble finally burst. Manyinvestors lost substantial sums of money on the dot-com bubble, helping to trigger a mild economicrecession in the early 2000s.
Dot-com bubbleThe "dot-com bubble" was a speculative bubblecovering roughly 1995–2000 (with a climax on March10, 2000 with the NASDAQ peaking at 5132.52 inintraday trading before closing at 5048.62) duringwhich stock markets in industrialized nations sawtheir equity value rise rapidly from growth in themore recent Internet sector and related fields.
Bubble growthVenture capitalists saw record-setting growth as dot-com companies experienced meteoric rises in theirstock prices and therefore moved faster and withless caution than usual, choosing to mitigate the riskby starting many contenders and letting the marketdecide which would succeed.This combined with aperiod of relative wealth, with many ordinary peoplewith spare cash investing and day-trading, whichcaused a lot of money to chase the availableinvestment opportunities.
Soaring stocksThe term may be used with certainty only inretrospect when share prices have since crashed. Abubble occurs when speculators note the fastincrease in value and decide to buy in anticipationof further rises, rather than because the shares areundervalued. Typically many companies thusbecome grossly overvalued. When the bubble"bursts," the share prices fall dramatically, and manycompanies go out of business.
Free spendingAccording to dot-com theory, an Internet companyssurvival depended on expanding its customer baseas rapidly as possible, even if it produced largeannual losses. For instance, Google and Amazon didnot see any profit in their first years. Amazon wasspending on expanding customer base and alertingpeople to its existence and Google was busyspending on creating more powerful machinecapacity to serve its expanding search engine.
The bubble burstsThe bursting of the bubble may also have beenrelated to the poor results of Internet retailersfollowing the 1999 Christmas season.This was thefirst unequivocal and public evidence that the "get-rich-quick" Internet strategy was flawed for mostcompanies. These retailers results were madepublic in March when annual and quarterly reports ofpublic firms were released.
AftermathMore in-depth analysis shows that 50% of the dot-coms companies survived through 2004. With this, itis safe to assume that the assets lost from the StockMarket do not directly link to the closing of firms.More importantly, however, it can be concluded thateven companies who were categorized as the "smallplayers" were adequate enough to endure thedestruction of the financial market during 2000-2002.