The latter half of the 90s was a very exciting time for technology. It was the beginning of the technological revolution that would eventually come to dominate every aspect of our lives and change the way we approach the world entirely. However, the rapid ascension of tech companies was marred by a sudden financial crisis caused in part by them, although it can be argued that their investors were more at fault. This market crash is an important part of our financial history and can help predict how things will go in the future.
THE DOTCOM BUBBLE IN 2000
The various tech companies that had established themselves in the mid-90s were starting to get more and more profitable. This made investors curious about the potential of this industry. One thing you need to understand is that investors work in strange ways. Often, it is their overexcitement about the potential of a certain industry that leads to uncontrolled investment, which eventually leads to overvaluing certain businesses, thus resulting in a financial crisis when these businesses failed to deliver.
With companies such as Yahoo! showing enormously profitable IPOs, investors leaped onto the bandwagon without fully understanding what the industry was about. The rapid evolution of technology also led investors to believe that this was a cash cow that would just keep on giving. Hence, they started investing blindly, with virtually every major website that was on the stock market seeing a huge rise in its stock prices.
WHY DID THE BUBBLE BURST?
The dot-com bubble made a lot of people very wealthy indeed, but since it was based on speculation and not hard facts, it was doomed to end badly. Just because of Yahoo! and Google had proved themselves to be enormously profitable, it did not mean that every website would do the same. Websites and companies started to scramble to attract investors and made promises that they could not possibly keep. The investors, knowing nothing about the nature of the technology or how any of it worked, decided to keep giving these companies money.
Once again, you should keep in mind that these investors were funneling money into companies that they assumed were going to pay them back tenfold. When these companies failed to deliver on their promises and their products failed to capture the market as so many products and services often do, investors ended up receiving little of the returns they had been counting on. This resulted in them dumping a stock.
The stock prices that had once been sky high started to plummet and seeing this trend, nearly all investors began to follow suit. Soon, these stocks were worthless, and the value of the stock market had plummeted so far that it caused a financial crisis. Businesses went bankrupt and were bailed out by tax dollars which reduced faith in the tech industry as a whole.
A big part of the reason the market crashed was that investors were looking at ideas, publicity, and relative growth, even if this growth was based on the investment themselves rather than income derived from the products. Profits were not taken into account at all. Companies began to cater to this mindset in order to secure funding. The profits never came in, the marketing gimmicks failed, and the dotcom bubble that had made so many so rich burst with a resounding bang in the year 2000.
The companies that survived this crash, namely Microsoft, Apple, Google and several others, became the dominant forces in rebuilding the tech industry and dictated where it would go in the subsequent years.
CONCLUSION
The thing about bubbles and crashes is that they are inevitable based on how our society functions. This is why it is so important to diversify your investments across different asset portfolios (index funds, stocks, cryptocurrency mining, ico-s, and cryptocurrencies themselves.
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