In financial terms a stock market bubble is a self perpetuating rise or boom in the share of a business within a certain industry, and the term bubble is there for a reason, because one day, as with all other "bubbles", it will burst.
The "dot com" industry looking back historically can be likened to the other rapid technology based booms including the railroads, automobiles and in most recent history the transistor radio in the 1950’s.
Between 1998-2001 the world saw the benefit of low interest rates, and whilst good for the home owner and or borrower, this is always a killer for those who rely on their income from invested lump sums drawing high returns from interest rates, as such you will find budding entrpreneurs ready to invest their cash in businesses for higher gains than can be found in banks as was the case for the Dot Com Bubble of 2000. These were the venture capitalists who saw the dot com industry as one which had not yet been exploited and offered up the chance of great fortunes for those with the stomache for a significant flutter!
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In these times, the dot com, e, or Internet company depended for survival on expanding its customer base as rapidly as possible, even if it meant the business producing large annual losses. Even Google and Amazon did not see any profit in their first years. Amazon was spending on expanding customer base and letting people know that it existed and Google was busy spending on creating more powerful machine capacity to serve its expanding search engine. When the Dot Com Bubble of 2000 finally did burst many of the surviving e companies relied on the venture capitalist for their cash flow. I do remember wondering at the time what blind and ridiculous precept could possibly entice an investor into an unproven industry which everybody appeared to believe would sooner or later burst, how undeniably naïve I must have been.
I do still believe that as many less experienced entrepreneurs simply called themselves an "e company" or added a dot com to the end of their business name, they were simply coning the financiers, and this in my opinion was borne out by the parachutists, who during the height of the Dot Com Bubble, and at the first smell of a business sale would bail out with what had simply been millions of dollars on paper with no significant assets or indeed profit history to back the valuation up. Such was the Dot Com Bubble. It was a highly speculative industry so prone to pricing error purely because nobody understood what, or whether indeed these businesses would ever have become profitable.
Casting my own mind back to the late 1980’s, I do recall sitting in the front room of an individual whom at that time had been trying to explain to me how he was earning more money than he could possibly spend by hosting something called the internet. I say this candidly as I went home that evening thinking this man was completely bezurk and wondering if indeed I should call the local doctor to go around and check out his state of mind. Little did I know what was to come! The likelihood is that this individual is probably now one of the wealthiest men in the country.
But, it wasn’t all good in the Dot Com Bubble and unfortunately whilst stocks, even in the likes of unit trusts and pension funds which usually attain fairly modest levels of ROI, grew by 50+% in the technology sector over the course of 12 months, it was as ever those same businesses that represent us average folk that ended up paying the price for the failures that only those minority of industry experts could have possibly foreseen.
History always repeats itself ...
Also read about the Stock Market Crash of 1929
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