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The DotCom Crash Revisited
woginuk writes "At 9:00pm GMT today , it will be exactly 5 years since the Nasdaq reached its highest level, 5048.62. From there on it has been downhill all the way. Most of us have been affected by it, one way or the other. The Guardian has a story looking back on the moment and succeeding events."
Well, that's a little bit strong, don't you think? The .com collapse was really tragic, but it was far from unpredictable, hysterical, or preventable. Just basic macro economics -- when there are economic profits (not just accounting profits) in a market then entrance is encouraged, and when these profits dry up then the market participants take a while to come back down to equilibrium, just likePavlov's dogs took a good while to stop salivating when the dinner bell was rung.
I more agreed with Julie:
Boy, how true did that turn out to be?
adam b.
Paul Graham has an interesting essay on "What the Bubble Got Right". It's worth remembering that some of the companies that lost 90% of their value are still worth billions today - e.g. Yahoo.
Looks like the server's smoking already - you can at least get the text from Google's cache.
Meep meep
I remember there was a pretty interesting comparison to the railroad boom and bust posted here a couple of years back, unfortunately I couldn't find a link to it. I think the railroad boom came in two waves, the second boom started about 5 years after the first and was much larger, and the bust was more devastating too. So we could be in for another bubble soon.
Also, here is an interesting read. I don't see the date on the article, but the wayback machine has it on Mar 2001, so it was probably written right at the peak.
Look at Apple's stock price over 5 years, for instance - it's higher now than it was at its peak in 2000.
Sig for sale or rent. One previous user. Inquire within.
1. Foreign countries decide propping up the dollar is a bad bet, and so start pulling out, slowly.
2. Other countries see this and the acceleration begins, with no country wanting to be the last one holding dollars.
3. The fall of the dollar continues, picking up speed.
4. Interest rates get raised quickly to encourage foreign investment despite the weak dollar.
5. The real estate market collapses.
6. Taking the stock market with it.
7. The U.S. economoy goes into recession.
8. Bush White House continues spending on wars.
9. The recession turns into a near-depression.
10. The rich buy up houses and land and everything of value, at dirt-cheap prices.
11. The U.S. is now a sharecropper economy, with 90% of the population being renters, and the rich being the owners.
I have to say, after reading this article and Paul Grahm's I have to agree that if you're going to start a tech company - which almost any net company is - then you need tech people.
.com happened - I had a good time. I was probably one of the only ones who never got around to investing in it (in fact, I told companies I worked for I'd rather have cash over stock) so I didn't really lose anything. However, it was a pretty silly time and unless you had a really good idea with some good people behind it, then you probably deserved to fail. Asking if it'll ever happen again is like asking if the gold rush of the 1800's will ever happen again.
When we (my partners and I) merged our startup with another leader in our industry, everything at first was rosy. But within a matter of months, the misunderstanding of not just our business but also our tech, ended up being responsible for everyone running for the door. I, the principal technology guy, was out the door in six months. And needless to say, our product was dropped from their system within a year. Today? The VC's pushed everyone out and the company assets and name were transferred (from San Francisco) to east coast ownership.
Not to say I and many friends didn't have a good time during the days. In fact, when I headed off to a tech consulting company after the startup, I and my co-workers probably spent more time at parties than at the office. But, would I do that again? Probably not. While I'm still fond of the fast paced energy that was was it was back then, I look at ideas like Boo (jesus, esp those guys), Pets, and others of the time and think "ugh."
But I'm still hopeful for business on the net only because it has such a global reach now. One of my partners and myself are at round two of our startup lives. We're targeting the same industry, but with completely different tools. And one noticable difference is we're seeking no funding at all - which is good and bad. Like Graham suggests, we're goin lean all the way and tech guys are running the show. However, after almost a year of development on my part, it's starting to wear and the mantra now is persistence.
Everyone has their own story and unlike some I've come across, I'm glad the
It is often said that people who risk money by buying a stock deserve the dividends they get by the risk they taking buying the stock. This is kind of tautological within the economic system however. The economic system consists of corporations producing commodities (PCs, bread, a colocation rack) and exchanging them for other commodities - a few decades ago money backed by gold, nowadays money which is theoretically worth something because one can pay taxes with it. Corporations often produce commodities which no one wants, which is the main risk of capital investment, it's a loss. Virtually everyone recognizes this as true, from former GE CEO Jack Welch to socialists like Paul Sweezy. Thus, the economic system commits the error of misplacing resources. This error produces capital risk, and this capital risk is the common explanation of why people deserve dividends from capital investment, instead of, say, the workers at the corporation who created that wealth.
As far as the US economy, productivity was extremely poor throughout the 1930's, then from the mid 1940's to the mid 1960's were 20 years of enormous productivity. It began slowing down in the mid 1960's, and by the early 1970's everyone realized there was an enormous problem. Nixon went off the gold standard, imposed wage and price controls, and dismantled the Bretton Woods system. Productivity has been pretty poor since the mid-1960s, there have been arguments of whether it had a decent bump in the late 1990s or not. The late 1990s bump is obviously from the Internet, an R&D project the US government poured billions of dollars into from the 1960s until the mid 1990s, it was a state project (DARPAnet/NSFnet) handed over the corporations when it had been developed after 25 years of taxpayer funding. Anyhow, this long slowdown in economic productivity in the US has resulted in the average inflation-adjusted hourly wage in the US being below what it was 30 years before. Asia seems to be the only area with decent productivity growth in thw world, but that creates another problem of who is going to buy all of the commodities China is pumping out since the market is already saturated.
This is not good financial advice. You are right, that an investor should start early to see the most gain (due to compounding). However, what you are advising is that someone go into more debt than they need to, "get as big a mortgage as your paycheck can afford," in order to invest.
For many years, this young investor will be paying someone else -- the bank -- rather than paying themselves. At the same time, the investor will has taken on a great financial burden, "[as much] as your paycheck can afford." Having put themselves into a bad position (they don't have much cash), they are now much more likely to fall into bankruptcy. Why? Because now they are more likely to have a cash crunch.
Further, all of this investor's eggs are in one basket. If their local real estate market turns sour, in particular at a time when they have to move, then they're in trouble.
I would advise the following. 1) start young. 2) take on as little debt as possible, as debt has a negative 5%-8% rate of return, and 3) diversify your investments to maximize your return over the long-term while minimizing short-term downturns.
--Pat / zippy@cs.brandeis.edu
What you are advising is paying massive amounts of interest and taxes on the hope that it will be made up for by appreciation. This is a much bigger gamble than investing in the stock market and renting. A lot of it depends on the area you live in and the rent/ vs. purchase price of homes but buying an expensive house is not a good investment ever. Also, I can think of something even better than that awesome tax deduction you get for mortgage interest ... not paying that interest in the first place.