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)
InvestingWhat's an IPO, can you get in on one, and will they make you rich?
InvestingPay attention to the escalating valuations of pre-IPO companies in 2016, as several will rise above the $10 billion level before going public.
InvestingReview three large-cap technology stocks that were among the biggest names in the sector in the dot-com era but are still far from their highs in 2000.
Financial AdvisorLearn about some signs of a potential stock market crash including a high level of margin debt, lots of IPOs, M&A activity and technical factors.
InvestingThe initial valuation of an IPO can determine the success or failure of a specific stock - but how is that price determined?
InsightsLearn why private companies are waiting longer to have their IPOs. Understand why it may be more advantageous for a company to stay private.
InsuranceAn initial public offering (IPO) marks the start of a company's publicly traded life. Find out why companies undergo IPOs, and how the process works.
InvestingExplore the factors that make the end of the current bull market more dangerous than the dotcom bubble, and why investors may have no place to hide this time.
InsuranceThe process of determining a company’s initial share price includes quantitative and qualitative components.