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The Tech Bubble: What happened

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  • The Tech Bubble: What happened

    It's the 1990's. Blockbuster is an industry leader in the home video arena. Shopping malls are packed to the rim every weekend, you could still supersize your meal at McDonald's, "Martin" and "Married With Children are helping a new network called FOX gain some traction, and former president Bill Clinton is in hot water.

    If you're reading this article and are too young to remember the 90's I can tell you that this article will never serve as a replacement for actually being there. The '90s were a whirlwind of events and goings-on. We were on the verge of a new millennium, a new technology was coming to the forefront, and unbeknownst to the average American, the stock market was about to experience one of the steepest downturns in US history.

    The internet was developed and put into use on a small scale before the '90s but 1994-1996 were the pivotal years that started a revolution. Starting in 1994 a number of the biggest names we know today were launched. Names like:

    Yahoo
    Amazon.com
    Lycos.com
    Telegraph.co.uk
    WSJ.com
    PizzaHut.com


    These are just a sampling of the websites that existed in the early-mid '90s. These companies were forward-thinking enough to establish an online presence when the majority of the world was still just beginning to hearing about the internet. Savvy entrepreneurs even bought up the domain names of companies who were late to party only sell them back to the actual companies at steep markup!

    It didn't take long for the popularity of the internet to explode and before you knew it every new "company" had a "dot com" in the name. Anybody who wanted to start a website did. The only problem with this is that the ones who were trying to create a business out their website didn't really know how to do so. The internet was still in its infancy and monetization of a website was still rocky terrain. A business that is unsure of how it will make money is dangerous. Writing a simple business plan would have shown most of these startup companies that they were lacking one of two very important elements...profit or at the very least the potential to turn a profit.

    One of the ways that these new tech companies thought of to raise capital for their businesses was going public. They were going to list on the stock exchanges and hope like everything just worked out and to be honest, it did, for a while. Towards the end of the decade, new tech companies were going public every single week. While these companies were going public they were also going through the roof. Companies with no profit or projected futures earnings were trading at prices far more exaggerated than what they should have been. The companies were essentially worthless but most people didn't care. In those days you could almost buy any tech stock and make money. It was a rare period of easy money in the stock market. Hindsight is always 20/20 but any reasonable person saw a crash coming. Even the traders and investors who were usually reasonably said: "what the heck, why not join in".


    Eventually the "insiders" or people with a more contrarian view of the world started to question what was going on. "Is this supposed to be happening?" was the main theme and those people started to sell out of their stock holdings believing the market was in for a major correction. The major players started first, then the doctors and lawyers, and finally the little old ladies. Stocks tumbled by way of an ever-growing snowball. Heavy selling pressure usually triggers more selling which triggers more selling. In this case, the selling was just too much. Stocks lost tremendous value in a matter of months. What had taken 10 years to build was destroyed in less than 3.

    The image below is of the NASDAQ and gives you a visual of how devastating the crash was. Those who were heavily invested in tech companies were wiped out. Those who had quit their jobs to become daytraders realized the fun times were over and it was time for the real traders to come back into the markets::


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    Chart of YAHOO

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    Chart of MSFT

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  • #2
    I'm old enough to remember thr tech bubble and I can tell you it wasn't pretty. I was still a small time investor back then so I didn't lose millions but my losses damn sure went into the 6 figures. Taught me a valuable lesson about diversification. Not just in stocks but into other avenues also. That made me want to delve more deeply into real estate.

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