A Look into Financial Bubbles Using the Dot Com Bubble as a Key Illustrator

How many bubbles have you experienced, one, two, four, or more. There have been a lot of bubbles, and when there is a new technology, innovation or anything new that has financial impact, there is a high possibility that it might end up being a bubble. We have heard of the bitcoin bubble of 2018 and so on but a lot of people might not be familiar with this bubble but there is one bubble that I will talk about in this post and that is the Dot com bubble.

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A bubble occurs when a product, innovation, industry or any sector experience an overvalued market rise compared to the service it is given because people want to invest and get money but soon people start to withdraw because of a news or because people lose interest investing.

So the Dot Com bubble was one financial fall that everyone saw. The internet became something for every business in 1993 and at this time, every business wanted to become a part of the internet. Everyone loves revolution as it is a positive change that brings businesses and people together and businesses like internet names like Mosaic increased in traffic over a short period of time and soon, people started to join the internet business. Soon, everyone wanted to start a dot com so they could start getting people to patronize them. Soon businesses like Amazon.com, GeoCities,com, Sex.com, Yahoo.com and so on came out. Soon in 1995, everyone wanted to own a business on the internet with a dot com ending it and soon people started to invest in businesses that had the dot com and this made stock prices of dot com companies go really high. Companies like Netscape doubled its initial public offering price on the very first day with a rise in market cap up to $2.7B within the first hour of trade.

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People started throwing money at every dot com business available and since there was enough money to spend, there was enough money to be made as returns. By 1999, the dot com market was big and seeing its peak in price and investors were concerned about sales growth. Soon so many companies started adding the dot com name to their business names even when they have nothing to do with the internet, also a lot of fake companies as well as incomplete companies came out and went public which caused a lot of disbelieve in the dot com companies by investors which led to a fall in most internet companies as well as a lot of people lost their money.

Bubbles are sometimes inevitable when the market is becoming too true to believe at a point when innovation is key. If you see the market going too high, it is a signal for you not to invest or pull out your funds, do not let greed take over your decision when investing.

References

https://www.lombardiletter.com/market-crash-what-caused-the-dotcom-bubble-to-burst-in-2000/9162/amp/