Market Crashes: The Dotcom Crash
  1. Market Crashes: Introduction
  2. Market Crashes: What are Crashes and Bubbles?
  3. Market Crashes: The Tulip and Bulb Craze
  4. Market Crashes: The South Sea Bubble
  5. Market Crashes: The Florida Real Estate Craze
  6. Market Crashes: The Great Depression (1929)
  7. Market Crashes: The Crash of 1987
  8. Market Crashes: The Asian Crisis
  9. Market Crashes: The Dotcom Crash
  10. Market Crashes: Housing Bubble and Credit Crisis (2007-2009)
  11. Market Crashes: Conclusion

Market Crashes: The Dotcom Crash

By Andrew Beattie

When: March 11, 2000 to October 9, 2002
Where: Silicon Valley (for the most part)

Percentage Lost From Peak to Bottom: The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11.

Synopsis: Decades before the word "dotcom" slipped past our lips as the answer to all of our problems, the internet was created by the U.S. military, who vastly underestimated how much people would want to be online. Commercially the internet started to catch on in 1995 with an estimated 18 million users. The rise in usage meant an untapped market--an international market. Soon, speculators were barely able to control their excitement over the "new economy."

Companies underwent a similar phenomenon to the one that gripped Seventeenth century England and America in the early eighties: investors wanted big ideas more than a solid business plan. Buzzwords like networking, new paradigm, information technologies, internet, consumer-driven navigation, tailored web experience, and many more examples of empty double-speak filled the media and investors with a rabid hunger for more. The IPOs of internet companies emerged with ferocity and frequency, sweeping the nation up in euphoria. Investors were blindly grabbing every new issue without even looking at a business plan to find out, for example, how long the company would take before making a profit, if ever.

Obviously, there was a problem. The first shots through this bubble came from the companies themselves: many reported huge losses and some folded outright within months of their offering. Siliconaires were moving out of $4 million estates and back to the room above their parents' garage. In the year 1999, there were 457 IPOs, most of which were internet and technology related. Of those 457 IPOs, 117 doubled in price on the first day of trading. In 2001 the number of IPOs dwindled to 76, and none of them doubled on the first day of trading.

Many argue that the dotcom boom and bust was a case of too much too fast. Companies that couldn't decide on their corporate creed were given millions of dollars and told to grow to Microsoft size by tomorrow.

Market Crashes: Housing Bubble and Credit Crisis (2007-2009)

  1. Market Crashes: Introduction
  2. Market Crashes: What are Crashes and Bubbles?
  3. Market Crashes: The Tulip and Bulb Craze
  4. Market Crashes: The South Sea Bubble
  5. Market Crashes: The Florida Real Estate Craze
  6. Market Crashes: The Great Depression (1929)
  7. Market Crashes: The Crash of 1987
  8. Market Crashes: The Asian Crisis
  9. Market Crashes: The Dotcom Crash
  10. Market Crashes: Housing Bubble and Credit Crisis (2007-2009)
  11. Market Crashes: Conclusion
RELATED TERMS
  1. Dotcom

    A company that embraces the internet as the key component in ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  3. Network Effect

    A phenomenon whereby a good or service becomes more valuable ...
  4. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently ...
  5. Hot Issue

    An issue that sells at a premium over the public offering price ...
  6. Hot IPO

    An initial public offering that appeals to many investors and ...
RELATED FAQS
  1. What lessons did the tech bubble crash give to investors in the Internet sector?

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  2. How has investing in the Internet sector evolved over time?

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  3. What average annual return has the internet sector historically generated?

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  4. What are the main reasons for investing in the internet sector?

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  6. Why did dotcom companies crash so drastically?

    The craze of the dotcom bubble and the flood of capital that came with it led to many back-of-the-napkin business models ... Read Answer >>
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