Y2K and the Internet Bubble Finally bursts

Internet Bubble

In the Summer of 1995, the Nasdaq closed above the 1,000 mark for the first time. It made consistent gains in the following years to reach 2,000 by 1998, then it got even crazier.

Think about this, Amazon went public in 1997 and the first day of trading increases 31%, in ONE day.  In November of 1998, theGlobe.com goes public and soars 606% in ONE day.  December ’98, an Analyst said Amazon trading at $250 a share would hit $400 in a year, it got there in weeks.  In late 1999, Linux Systems goes public and in ONE day shoots up 698%.  This process skyrocketed in late 1999. The index closed that year at 4,069.31. On March 10, 2000, the index finally peaked at an intra-day high of 5,132.52 and closed at an all-time high of 5,048.62. 

Do you want to know how much money I lost when the bubble burst?  NONE.  I learned what to look for in stocks, what charts to look for, what type of fundamentals to look for and each and every week there wasn't a single stock to buy.  I even remember yelling across the trading room floor “why can’t I find one single stock to buy and the Index keeps going higher”?

 I was really second guessing myself at this time because traders, institutions, Hell even Grandmas were making a killing.  Some of the traders in the office were making ridiculous money and here I am by Early to mid summer 1999 sitting is cash just dying to continue trading and what I was learning and studying was telling me these companies are too far extended to buy.  It’s easy to look back now and see that I was right but let me tell you when everyone is making money and you see stocks soar like this, it is damn hard to sit on the sidelines.  If I would have purchased any stock, I’m sure I would have held on too long and lost most of everything I had made in the last 2 ½ - 3 years.  When the market broke, people and investors got wiped out.  Who cares if you had paper profits in the 100’s of thousands, if you do not know when the markets turns or when to lock in profits you will get hurt.  Some of those High fliers have never come back.

Remember theGlobe.com soaring, yeah it last traded at 16 cents a share and was delisted on April 23, 2001.  Don talk to me about “I’m a long term investor because your stock is down”, if you are a long-term investor find a great growth mutual fund with a great track record and invest in it forever, otherwise, when investing in individual stocks, invest until it can’t go up any further and get out while it’s still advancing.  A once great investor, Nathan Rothschild once said, I never buy at the bottom and always sell too soon.

The decline from this peak signaled the beginning of the dot-com bubble burst. There were multiple things contributing to this Dot-com boom and bust. Most people thought the internet and World Wide Web would be more significant to business than any kind of previous business cycle in the past, possibly leading to end of all “Brick & Mortar” stores as we know it. Some pessimistic types were convinced that business would require massive technology replacement to achieve Y2K compatibility.

The index declined to half its value within a year, and finally hit the bottom of the Bear market on October 10, 2002, with an intra-day low of 1,108.49.

 

One of the most important things I can teach you and easily show you is how to screen for companies that are worth investing in and when to buy.  I made a list every week of these stocks and it helped me avoid one of the nastiest Bear markets in the history of our country.  As the top got closer, I found fewer and fewer stocks that met the criteria.  A sure sign that things were not right. This bubble also taught me to do a post-analysis of the market action and led me down a path to learning from some of the great investors of all time and how they studied the general market to notice clues that happen before the Market falls apart. 

Until next time, be the smartest investor in the room, 

Chad