A:

It is important to add a little sophistication to any review of the historical stock returns for companies in the Internet sector. An asterisk has to be placed on any stock returns during the rise of the dot-com bubble in the mid- to late-1990s, when the Nasdaq exploded and tech companies made a fortune on IPOs despite lacking fundamentals. There is also the trouble of defining an "Internet" company. During the 10-year period between mid-2005 and mid-2015, the Internet sector returned 9.14% per year compared to an S&P 500 average of 7.27% and an overall Nasdaq average of 13.96%.

Defining the Internet Sector

Some publications count any online-based company in the Internet sector. Others consider Internet to only be a subsector of the technology sector, making Facebook the same type of company as Samsung or Microsoft.

One official characterization comes from the Department of Homeland Security, or DHS. DHS says the Internet sector is actually a "collaboration" between the information technology, or IT, sector and the communications sector. Examples of DHS-designated companies include Amazon, Google, Facebook, eBay and CISCO.

The Dot-Com Bubble

The 1990s saw financial deregulation, a steady low-interest rate environment and a worldwide fascination with the rise of the Internet industry. Internet returns exploded and the Nasdaq surpassed 5,100 in March 2000. By mid-2001, it fell back down to 1,300, or about a 75% loss.

Growth during the dot-com era was not indicative of the real performance of Internet stocks or the Internet sector as a whole. Some believe a new Internet bubble has been blown up in the aftermath of the Federal Reserve's quantitative easing program. For example, the highest Nasdaq valuation in the period between 2002-2011 was just shy of 2,900; this despite enormous growth in the use and utility of the Internet. By mid-2015, however, it gained 40% on that high to finish near 5,100 again. This may mean returns between 2011-2015 should not be considered normal either.

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