2001 saw one of the largest stock collapses in recent history – the NASDAQ tech index collapsed. Along with the fall in the index, the dot-com bubble burst. A huge number of internet startups have gone bankrupt. Even those companies whose business was established suffered huge losses. How it happened …
In the first half of the nineties, a period of active development of the Internet began. More users began to have personal computers, and companies began to massively switch their activities to work on the Internet. If the company didn't have its own website, it didn't seem solid.
People were in euphoria from the anticipation of the opportunities that the world, united by a single Internet network, would give them in the near future. Investors were also such people.
Internet startups appeared daily. The companies themselves tried to collect investments as quickly and as much as possible. But this was only done to invest in marketing, increase brand awareness, raise funds again and redirect them to advertising. The slogan of that time was the expression: grow quickly or disappear.
Before the market crash, there were several events that contributed to it. To begin with, Japan – at that time the second largest economy in the world – went into recession. This caused a massive sale of shares in technology companies, which, according to experts of the time, could be primarily affected by the deteriorating economic climate. But one of the main reasons: investors began to realize that the companies they invested in had never learned how to make a profit…
Moreover, such companies are unlikely to ever be able to do this, since they are not able to develop a sustainable business model.
When the bubble burst, only recently promising projects were left without means of subsistence. Money evaporated from the sector, and even those firms whose business was based not only on the number of clicks and loud ads suffered huge losses. For example, shares in telecommunications company Cisco fell 86%, Amazon shares fell 93%. Subsequently, the shares of many companies recovered, but not all.
What lesson can be learned from this story …Invest in companies that are profitable, not considered promising.