Anyone remember the Dot-com bubble?

[NNN0LHI]

http://en.wikipedia.org/wiki/Dot-com_bubble

Dot-com bubble

The dot-com bubble (or sometimes IT bubble or Internet bubble) was a speculative bubble covering roughly 1995–2000 (with a climax on March 10, 2000, with the NASDAQ peaking at 5132.52 in intraday trading before closing at 5048.62) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more recent Internet sector and related fields. While the latter part was a boom and bust cycle, the Internet boom is sometimes meant to refer to the steady commercial growth of the Internet with the advent of the world wide web, as exemplified by the first release of the Mosaic web browser in 1993, and continuing through the 1990s.

During the mid-to-late 1990s, Cisco Systems, Dell, Intel, and Microsoft were known as "the Four Horsemen of the NASDAQ" because of their dominant market capitalizations. As the bursting of the Internet bubble approached, Cisco Systems, EMC, Sun Microsystems, and Oracle were known as "the Four Horsemen of the Internet."

The period was marked by the founding (and, in many cases, spectacular failure) of a group of new Internet-based companies commonly referred to as dot-coms. Companies were seeing their stock prices shoot up if they simply added an "e-" prefix to their name and/or a ".com" to the end, which one author called "prefix investing".

A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics such as P/E ratio in favor of confidence in technological advancements.

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Basically what was going on was a new company called abc.com would get listed with the NASDAQ. Than another new company called xyz.com would get listed. Then the company called abc.com would "purchase", $50 million dollars worth of advertising from the company company called xyz.com. And naturally xyz.com stock would go through the roof. Then soon after that the company called zyz.com would "purchase", $50 million dollars worth of advertising from abc.com and then abc.com stock would go through the roof. But actually no money was ever changing hands between the two companies. But their stock was now worth a lot of money. For a little while anyway. Until the bust.

This is not a complete or exact synopses of everything that was going on back then but I am positive this kind of scam was part of it. I don't think anyone went to jail for this either.

Don

[Xithras]

1. Remember it? I lived and breathed it.

I worked for multiple Bay Area dotcoms during the bubble. I worked as a contract employee for some, a full employee for others, and even founded a couple that failed to garner any real interest (the notion that ANYONE could get funded with a website and a dotcom name is untrue).

While ghost transactions, of the type you describe, DID happen, they weren't a major part of the bubble. In a nutshell, the dotcom bubble can be describes thusly: A lot of people were genuinely convinced that the brick and mortar store was dead. From groceries to cars to pet food, we were entering an era where everything would be delivered to your home, and physical stores would cease to exist. It seems silly in hindsight, but there were a LOT of people who really believed that this was true. The general assumption was that the dotcoms being founded at that time would either become the WalMart's of the future, or would at least become acquisition targets for future mergers.

This belief gave them all an inherent value, and gave rise to the "race to the IPO". Profitability wasn't important. Sustainability wasn't important. You merely needed to establish a website targeting a theoretically profitable sector, establish enough traffic to legitimize yourself as a company with a viable chance of controlling that sector, and file for your IPO. Investors threw money at these stocks with the idea that they would grow into a marketshare befitting their stock price, without ever looking at these companies or their realistic sales projections. Every company shared the same hockey-stick growth chart, and few had any concrete plans to make those charts reality.

Generally speaking, the founders of these companies would hand them over to CEO's just before the IPO, and then cash out their personal stocks once it went public. This generated huge profits for them without subjecting them to any legal liability. By the time the companies went bankrupt, the founders had long since sold off their interests and were sunning on beaches in the South Pacific.

I could tell you stories about dotcoms that would horrify any investor, but most didn't actually break the law or engage in outright fraud. Most simply took advantage of the highly speculative environment that existed at the time in order to reap huge financial rewards for their founders. Shady? Sure. Illegal? Not usually.

[NNN0LHI]

4. Thank you for giving that much more informative and concise explanation of what happened back then

:applause:

[mikeysnot]

12. Matt Tiabi's Griftopia

Has a great chapter on this, just another wall street speculation scam.

Some folks misinterpret this as the "internet bombed", when it was just wall st. scam artists.

[Chimichurri]

2. My Hubby and I both lost our jobs. Those were crazy, crazy times!

[Chimichurri]

3. pets.com and fuckedcompany.com are the epitome of that era for me.

huge lessons were lost during this time. This is the reason we stayed clear of the housing mania. It was the same nonsense but on a much larger, more dangerous scale. It's too bad we are so ill informed as a nation.

[Xithras]

6. I miss Pud!

Man, I haven't thought about FuckedCompany in years. There was a point where I was checking that site every few days to keep track of which of my friends and former co-workers were being laid off each week. For a few months there in 2000, I knew at least one person who was fired every week, and usually several each week (including one poor sap who was laid off from three different companies in four months). That was a bad time to be a programmer.

[Ruby the Liberal]

11. I had forgotten all about fuckedcompany.com

Good times.

[slackmaster]

5. I built it myself, and I loved it

Lost a lot of money that never existed in stock options, and almost had to pay Alternative Minimum Tax.

[Liberal_in_LA]

7. My memory of that time - companies would appear, increase in value, & I had no idea how they made $$

money. Just like Enron.

[Xithras]

9. Most didn't.

First, you'd convince your friends, family members, or someone else with a little extra cash to fund the core of your company. You'd use their money to pay the incorporation costs, buy your first server or two, build a skeletal version of your website, and maybe craft a crude business plan.

Second, you'd find an Angel Investor to kick you a little more money. With this you could hire your first couple employees, hire a consultant to write a real business plan, and get your site fully operational. You'd probably also buy some banner ads to drive a little bit of traffic to your site.

Third, you'd market yourself to venture capitalists. They would reincorporate you, create a board and CEO, set you up with some proper offices and a large staff, and provide the marketing muscle to get your name out there and drive up your traffic levels.

Fourth, you'd go IPO. This would pour many millions of dollars into your coffers, allow you to buy an office tower and set up satellite offices around the world, buy advertising during the Super Bowl, and market yourself as the Next Big Thing.

At no stage of the dotcom growth process were actual sales figures or profitability even a consideration. For most of them, the operating capital came almost exclusively from investors.

[Liberal_in_LA]

10. I also remember they were renting office space left and right. And when one would fail

another would take that office space.

[-..__...]

8. I remember the days when one could make $$$$...

simply by cybersquatting/domain name squatting.

InterNic, was the sole registrar.

I forget what the fee was at the time... something like $20.00 - $30.00

Do your research right, and you could easily roll that investment over to $10,000 (or way more)