WEB GUIDE

The Dot-com Bubble

It burst like any other bubble

Roa AlnaasFIN 686

index

Presentation Content

Introduction

Cautionary Tales

Impact

Conclusion and Legacy

History

Lessons

THank you

Factors

Other Bubbles

References

Internet Stocks

Key Figures

01

Introduction

What Is the Dot com bubble?

The definition and history

Quick definitions

Bubble and Dot-com bubble.

1. Dot-com Bubble: Refers to the rapid escalation in U.S. technology stock values driven by investments in Internet-based companies during the late 1990s.
2. Speculative Bubbles: Occur when asset prices inflate rapidly based on expectations rather than intrinsic value, leading to a subsequent sharp decline.

What is a Bubble?

In the context of finance, a "bubble" refers to a situation where the price of a particular asset, such as stocks, real estate, or commodities, becomes significantly inflated beyond its intrinsic value. This inflation is often driven by speculation, investor optimism, and the expectation of further price increases rather than by the fundamental value of the asset.

the late 1990s technology stock escalation

1. Internet Boom: Investors poured money into Internet-related companies, driven by the growing popularity and potential of the Internet.
2. Speculative Bubbles: Occur when asset prices inflate rapidly based on expectations rather than intrinsic value, leading to a subsequent sharp decline.
3. Unsustainable Valuations: Many companies with little or no profits, and sometimes unclear business models, saw their stock prices reach astronomical heights.
4. Proliferation of Start-ups and IPOs: The dot-com boom led to a surge in the creation of start-ups and the proliferation of initial public offerings (IPOs) as investors sought to capitalize on the trend.
5. Bubble Burst: The bubble eventually burst in the early 2000s as overvalued companies failed to meet expectations, leading to a sharp market correction and significant losses for investors.

What is a Bubble?

In the context of finance, a "bubble" refers to a situation where the price of a particular asset, such as stocks, real estate, or commodities, becomes significantly inflated beyond its intrinsic value. This inflation is often driven by speculation, investor optimism, and the expectation of further price increases rather than by the fundamental value of the asset.

01

Nasdaq

A stock market index that includes almost all stocks listed on the Nasdaq stock exchange.

Nasdaq's surge and internet-related stocks

1. Nasdaq's Surge. 2. Internet-Related Stocks.

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1. Nasdaq's Surge: - The late 1990s witnessed a significant surge in the Nasdaq, a stock market index heavily influenced by technology stocks [T6]. - Between 1995 and 2000, the Nasdaq index skyrocketed from under 1,000 to over 5,000, reflecting the rapid escalation in U.S. technology stock values [T6]. - This exponential growth in equity markets, particularly driven by investments in Internet-based companies, marked a pivotal period in the financial landscape [T6]. 2. Internet-Related Stocks: - The Dot-com Bubble was characterized by the swift ascent and subsequent collapse of internet-related stocks, propelled by the promise of the internet revolutionizing various sectors [T6]. - Internet companies experienced unprecedented growth during the late 1990s, with stock prices soaring to dizzying heights [T6]. - High-profile initial public offerings (IPOs) of companies like Amazon, Yahoo, and AOL captured investor attention and contributed to the soaring valuations of internet-related stocks [T6]. - However, this period also witnessed irrational exuberance and speculation, with investors inflating stock prices beyond their intrinsic value, leading to unsustainable valuations [T6].

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Factors Contributing to the Dot-com Bubble

- Investor speculation and fervor

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- Low interest rates and economic prosperity

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- Fear of missing out (FOMO) and stock price surge

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Rise and Fall of Internet Stocks

The late 1990s witnessed the exponential growth of internet companies, fueled by investor optimism about the internet's transformative potential

- Growth of internet companies. - High-profile IPOs and soaring stock prices. - Irrational exuberance and unsustainable valuations.

High-profile initial public offerings (IPOs) like Amazon, Yahoo, and AOL captured investor attention, driving valuations to dizzying heights during the Dot-com Bubble

Irrational exuberance during the Dot-com Bubble led to unsustainable valuations of internet-related stocks, ultimately contributing to the bubble's burst in the early 2000s

Impact of the Dot-com Bubble on the Economy

Economy, investors, and internet stocks.

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Shadow over investor confidence and regulatory oversight

Collapse of internet companies and investor losses

Fragility of the sector and economic strain

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Lessons Learned and Reforms Implemented

- Prudent investment strategies and risk management. - Diversification of portfolios and regulatory reforms. - Sarbanes-Oxley Act and market integrity

Comparison with Other Historic Bubbles

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Importance of informed investment practices and regulatory measures

Parallels with Tulip Mania and the mid-2000s housing bubble

Key Figures and Companies of the Dot-com Era

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Amazon

From $18 to $6

1999 to 2001

Refrences

In case you want to read more

Yahoo

CNBC. (2022). Amazon.com Inc. Investopedia. (2022). Amazon.com Inc. Investopedia. (2022). Yahoo! Inc. Investopedia. (2022). AOL Time Warner Inc.

From $13 to $8

1996 to 2001

AOL

Billions loss

1992 to 2001

Instrumental in shaping the digital economy during the Dot-com era

Impact of these companies on the digital economy

Pioneering e-commerce, online services, and internet portals

Innovative strategies and disruptions influenced the development of online business models and consumer behavior

laying the groundwork for the digital economy's expansion

Amazon, Yahoo, and AOL

the successes of Amazon, Yahoo, and AOL

june

Shifting the technology sector to make billions.

Demonstrated the potential for online commerce and services to thrive in the digital age, leaving a lasting impact on the digital economy.

After the burst the came back stronger

Cautionary Tales from the Dot-com Bubble

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Enduring lessons from the Dot-com Bubble

Excessive speculation and consequences

Need for rationality in financial markets

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Conclusion and Legacy of the Dot-com Bubble

Resilience and positive change post-implosion

In the aftermath of the Dot-com Bubble implosion, investors and financial institutions embraced a more conservative approach, diversified portfolios, and strengthened risk management frameworks, fostering resilience and spurring positive change in the financial landscape

Legacy of innovation and stable financial landscape

The Dot-com Bubble era left a legacy of innovation that paved the way for today's thriving digital economy, while the lessons learned and structural reforms post-implosion laid the groundwork for a more stable financial landscape in the years to come

Reminder of the perils of unchecked optimism

The Dot-com Bubble serves as a stark reminder of the perils of unchecked optimism in financial markets, highlighting the risks of speculative excess and irrational exuberance that can lead to unsustainable growth and market collapse

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THANKS!

Roa Alnaas

Any Questions?

References

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• Crain, M. (2014). Financial markets and online advertising: Reevaluating the dotcom investment bubble. Information, communication & society, 17(3), 371-384.• Goodnight, G. T., & Green, S. (2010). Rhetoric, risk, and markets: The dot-com bubble. Quarterly journal of speech, 96(2), 115-140. • Kraay, A., & Ventura, J. (2007). The dot-com bubble, the Bush deficits, and the US current account. In G7 Current Account Imbalances: Sustainability and Adjustment (pp. 457-496). University of Chicago Press. • Leone, V., & de Medeiros, O. R. (2015). Signalling the Dotcom bubble: a multiple changes in persistence approach. The Quarterly Review of Economics and Finance, 55, 77-86. • Ljungqvist, A., & Wilhelm Jr, W. J. (2003). IPO pricing in the dot‐com bubble. The Journal of Finance, 58(2), 723-752. • Morris, J. J., & Alam, P. (2012). Value relevance and the dot-com bubble of the 1990s. The Quarterly Review of Economics and Finance, 52(2), 243-255. • Perkins, A. B., & Perkins, M. C. (1999). The internet bubble. New York: HarperBusiness. • Panko, R. R. (2008). IT employment prospects: beyond the dotcom bubble. European Journal of Information Systems, 17(3), 182-197. • Wheale, P. R., & Amin, L. H. (2003). Bursting the dot. com" bubble': a case study in investor behaviour. Technology Analysis & Strategic Management, 15(1), 117-136

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