Back in 2000, after the Y2K scam had been cosumated and we all knew that computers were not going to start destroying everything something happened in the technology world – known as the Dot Com burst. I don’t think it is related to Y2K but the bubble burst was in reality what everybody thought the latter was going to be in possibility. Funny how things work sometimes.
Say my name by Destiny’s Child was in number one on the charts that year, then followed by a whooping 10 weeks of Sanatana’s Maria Maria.
Here is some Wiki context since ’nuff has been said about this.
The dot-com bubble (also referred to as the dot-com boom, the Internet bubble and the information technology bubble[1]) was a historic speculative bubble covering roughly 1997–2000 (with a climax on March 10, 2000, with the NASDAQ peaking at 5,408.60[2] in intraday trading before closing at 5,048.62) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the 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.
According to dot-com theory, an Internet company’s survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. For instance, Google and Amazon.com did not see any profit in their first years. Amazon was spending to alert people to its existence and expand its customer base, and Google was busy spending to create more powerful machine capacity to serve its expanding search engine. The phrase “Get large or get lost” was the wisdom of the day. At the height of the boom, it was possible for a promising dot-com to make an initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit—or, in some cases, earned any revenue whatsoever. In such a situation, a company’s lifespan was measured by its burn rate: that is, the rate at which a non-profitable company lacking a viable business model ran through its capital.
Public awareness campaigns were one of the ways in which dot-coms sought to expand their customer bases. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. Super Bowl XXXIV in January 2000 featured 16 dot-com companies that each paid over $2 million for a 30-second spot. By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed iWon.com gave away $10 million to a lucky contestant on an April 15, 2000 half-hour primetime special that was broadcast on CBS
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 basing confidence on technological advancements.
On March 20, 2000, after the NASDAQ had lost more than 10% from its peak. In its cover story “Burning Up” the financial weekly Barron’s quoted Napster-cofounder Sean Parker: “During the next 12 months, scores of highflying Internet upstarts will have used up all their cash. If they can’t scare up any more, they may be in for a savage shakeout. An exclusive survey of the likely losers”. The article pointed out that “America’s 371 publicly traded Internet companies have grown to the point that they are collectively valued at $1.3 trillion, which amounts to about 8% of the entire U.S. stock market”.
Now for the good part, let look at he events though our Viracocha set of graphs.
Event 0 – 20 Oct 1999. The heating of the market has been happening for a while now. We have noticed that Viracocha may be best used at detecting these kind of unusual movements. This is a good time to get in the market, all the signs were there and people were very confident and buying shares. Also notice that a bit after Event 0 the “beams were crossed” indicating that a turn was coming.
Event 1 – 23 Dec 1999. While everybody was drinking champagne at the family table and eating Christmas dinner the DotCom beast started to move in strange ways. After people continuously left the market – evident in the low yellow line- then the drop in the price was coming. Event 1 is a get out signal.
Event 2 – 28 Jan 2000. With the benefit of hindsight we can say that Event 2 was the last moment to get in. There was a big dip in price at the start of the year. Although in reality it was more of a hiccup and maybe too quick to notice in the new year euphoria of 2000.
Event 3 – 29 Feb 2000. This is the clear sign to get out or else… This is what we really want to see to reduce risk, the red peak right before the dip in price that occurred after March 10. So in a way we were 10 days in advance. And yes, February had 29 days that year.
We have other financial market crash analyses here