Nobody will have a party. There will be no cake, no gifts, no cards. But recently, we commemorated the 20th anniversary of the dotcom bubble. Precisely two decades after one of the most euphoric episodes of modern capitalism, we finally have enough perspective to start learning its lessons.
With markets hitting new highs all the time, and technology more powerful than ever, it’s important to remember all of this, because otherwise we could be facing a scenario much like the one that was posed two decades ago now.
There was no way of knowing, when the Dow Jones reached 11,772 points in January 2000, it marked the top of one of the great bull markets of all time. But while the Nasdaq continued to rise for a bit longer, it went downhill from there for the world’s main index. The fall spread throughout the world and it took years to recover. The party was over.
This ‘boom’ has been shown to be the catalyst for the digital revolution that followed.
The bubble was a crazy time. Over a couple of years, a random 20-something in chinos, a sweatshirt, and a friend running a Netscape browser (if anyone still remembers them) could raise a few million in a couple of days and double the value. of his company a year later. Money was thrown around like it was going out of style, and fortunes were minted in the blink of an eye. In retrospect it was not a great surprise that everything ended badly. Many of the businesses launched over a crazy couple of years were flimsy, insubstantial and poorly run, with money wasted on an epic scale.
And yet, that doesn’t mean there aren’t valuable lessons to be learned from all of it. Here are three that every CEO and investor should be aware of.
First, it may have been a bubble, but that doesn’t mean something real wasn’t going on. There was a lot of craziness, and some genuinely terrible ideas that were wildly overrated. Lots of giant companies wasted tens of millions trying to buy something they didn’t understand. But the basic idea that the Internet was a hugely significant piece of technology that would fundamentally change the way almost all businesses operated, and indeed the global economy, was absolutely correct. It didn’t happen as everyone expected at the time, and it took a bit longer than originally planned. But the premise was correct. It was a moment of opportunity, and if you didn’t seize it immediately, it was gone forever. Even if many mistakes were made along the way, investors were right to seek some room on the wagon.
Shockers such as the one that the Internet supposes never evolve peacefully and without leaving casualties
Second, stock markets still matter. They have diminished in importance as private equity and venture capital funds have become much more important in the years since. But for a couple of years in the late 1990s, the stock market was crucial in creating the boom.
He threw large sums of money at people with hardly any question as to how it would be spent. And by creating a steady stream of new millionaires, all of whom received massive amounts of publicity, he inspired thousands of people to try launching their own business. By generously funding every thirty-something with even an idea, the capital markets unleashed an entrepreneurial boom, with enormous energy and passion, the impact of which is still being felt.
Lastly, invest for the long term. The stock market crashed, but it’s well ahead of its 2000 peak. Since that peak in January 2000, the Dow has soared to close to 30,000 and the technology-focused Nasdaq has even more. better.
If you had been smart enough, you could have landed some incredible bargains in the midst of the crisis. Shares of an emerging Internet retailer that everyone suddenly decided was too risky fell 9% to less than $6, but today Amazon shares are trading at $1,877. Apple was down 71% in that year. But it bounced back and became the biggest company in the world.
Sure, there were plenty of companies that never recovered, and others that faded into obscurity (not many people have heard of AOL, even though it was briefly one of the biggest winners of the boom). But overall investors who bought even at the top of the market have done fantastically well. Patience matters more than anything else.
The dot-com bubble has burst. There was certainly a lot of madness. Money was too easy to raise, and there was little control over how it was spent.
However, the fortunes invested in building Internet and telecommunications networks, refining and developing browsers, creating the infrastructure for selling and delivering products over the Internet, and persuading us all to bring our Mobile phones around the clock have transformed the world economy. None of that was going to happen easily, and there were always going to be casualties along the way.
However, the truth is that the bubble was a powerful catalyst for change. In many ways, we are now living in the world he created, and it’s better that way.
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