This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Dot-com bubble From Wikipedia, the free encyclopedia Jump to: navigation , search The "dot-com bubble" (or sometimes "IT bubble"  or "TMT 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 sometimes is 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. 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. [ edit ] Bubble growth The venture capitalists saw record-setting rises in stock valuations of dot-com companies, and therefore moved faster and with less caution than usual, choosing to mitigate the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998–99 helped increase the start- up capital amounts. Although a number of these new entrepreneurs had realistic plans and administrative ability, many more of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot- com concept. [ citation needed ] A canonical "dot-com" company's business model relied on harnessing network effects by operating at a sustained net loss to build market share (or mind share ). These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.  During the loss period the companies relied on venture capital and especially initial public offerings of stock to pay their expenses while having no source of income at all. The novelty of these stocks, combined with the difficulty of valuing the companies, sent many stocks to dizzying heights and made the initial controllers of the company wildly rich on paper....
View Full Document
- Fall '10
- stock markets, Dot-com bubble, Stock market bubble, dot-com companies