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Topics: Dot-com bubble, Stock market bubble, Stock market Pages: 7 (2376 words) Published: March 13, 2014
The dot-com bubble (also referred to as the dot-com boom, the Internet bubble and the information technology bubble[1]) was an historic speculative bubble covering roughly 1997–2000 (with a climax on March 10, 2000, with the NASDAQ peaking at 5,408.60[2] in intraday trading before closing at 5,048.62) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the Internet sector and related fields. While the latter part was a boom and bust cycle, the Internet boom is sometimes 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 could cause their stock prices to increase by simply adding an "e-" prefix to their name or a ".com" to the end, which one author called "prefix investing."[3] 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 basing confidence on technological advancements. The collapse of the bubble took place during 1999–2001. Some companies, such as Pets.com, failed completely. Others lost a large portion of their market capitalization but remained stable and profitable, e.g., Cisco, whose stock declined by 86%. Some later recovered and surpassed their dot-com-bubble peaks, e.g., Amazon.com, whose stock went from 107 to 7 dollars per share, but a decade later exceeded 400.[citation needed] Contents [hide]

1 Bubble growth
2 Soaring stocks
3 Free spending
4 The bubble bursts
5 Aftermath
6 List of companies significant to the bubble
7 See also
7.1 Terminology
7.2 Media
7.3 Venture capital
7.4 Economic downturn
8 References
9 Further reading
10 External links
Bubble growth[edit]

Venture capitalists saw record-setting growth as dot-com companies experienced meteoric rises in their stock prices 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. A canonical "dot-com" company's business model relied on harnessing network effects by operating at a sustained net loss and 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.[citation needed] Soaring stocks[edit]

In financial markets, a stock market bubble is a self-perpetuating rise or boom in the share prices of stocks of a particular industry; the term may be used with certainty only in retrospect after share prices have crashed. A bubble occurs when speculators note the fast increase in value and decide to buy in anticipation of further rises, rather than because the shares are undervalued. Typically, during a bubble, many companies thus become grossly overvalued. When the bubble "bursts", the share prices fall dramatically, and many companies go out of business. American news media, including respected business publications such as Forbes and the Wall Street Journal, encouraged the public to invest in risky companies, despite many of the companies' disregard for basic financial and even legal principles.[4] Andrew Smith argued that the financial industry's handling of IPOs tended to benefit the banks and initial investors rather than the companies.[5] This is because company staff were typically barred from reselling their...
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