Editor’s Note: This is one part of a series of stories looking at the top stock market stories since 2000.
The dot.com bubble officially exploded in March of 2000. The explosion rippled through the stock market sending the major indexes plummeting.
The bubble was inflated by several years of wild speculation on Wall Street that any company associated with the Internet was a potential gold mine.
It was abetted by unprecedented economic growth in the latter half of the 1990s
Companies went public with no sales and, in some cases, not even a working model of the product.
Fortunes were made and reported daily – the failures and collapses got less attention.
The body count was extraordinary and included many amateur investors hoping to grab a piece of the dot.com rocket.
Sadly, but not unexpectedly, major players in the stock market bailed when speculating became too risky.
They left behind millions of investors holding stock in companies worth next to nothing.
The markets skyrocketed up and, then, back down.
It was a classic example of investors buying into the market near its height and then watching the bottom fall out. (See table at the end of this article)
Unfortunately, events in 2001 (the 9/11 attacks in particular) turned the pop into a prolonged bear market.
The lessons from the dot.com collapse were, unfortunately, forgotten, but are worth repeating again:
Trading may push stock prices up over the short-term, but long-term investors should focus on fundamentals. If a company does not have a viable business plan, don’t count on it surviving, no matter how hot the stock is today.
Jumping at the latest “hot” stock invariably means you are buying from smart traders who have bid the price up and are looking to reap their profits at your expense.
Market hysteria is a dangerous environment for all but the most nimble and knowledgeable traders. That, almost certainly, isn’t you (or me).
The temptation of what appears to be “easy money” in a hot market can overwhelm otherwise thoughtful minds. When tempted to jump into a boiling market, remember what happens to lobster in similar situations.
The market eventually recovered and went on to new heights, but not on the dot.com express. That train was derailed.
The housing bubble and concurrent rise of financial stocks proved that memories are short when juicy profits appear to be easy pickings.
The takeaway: large, well-funding traders will almost always beat amateur investors over the short-term.
Index Information for 2000
|Index||High||Low||Swing||Year Start||Year End|
|*Index information adjusted for dividends and splits|
Swing is the difference between the high and low closes for the year
Source: Yahoo Finance