The DotCom Bubble is a stock speculation bubble on the internet sector in the United States. Background In the early 1990s, many people, especially in the United States and Europe, were able to access the internet. Many people think that the internet is the future and predict that every company engaged in the internet sector will have great success. This is supported by data showing a significant increase in internet users. From the beginning, only 2.6 million people used the internet in 1990, eventually increasing to 412 million people in 2000. The more users, the more consumers who can be offered products using the internet platform. The emergence of new business opportunities has forced a number of companies to deliberately compete in offering the best products, ranging from browsers such as Mosaic, Netscape, Internet Explorer to e-commerce such as Ebay to Amazon.
The majority of companies carry internet technology projects with dotcom frills behind them. Until finally Netscape managed to excel faster and take the floor on the NYSE exchange as the first technology company. Furthermore, there are more technology companies that turn to IPOs with high expectations from investors that they will become successful companies. The stock price of internet technology companies also jumped significantly and one of the triggering factors was the interest rate of The FED which was quite low considering that previously the US economy was in a recovery phase. Many people borrow money from banks at low interest rates and invest it in technology companies whose prices are expected to grow rapidly. Well, right in 2000 the FED saw enough money in circulation causing the US inflation rate to rise quite wildly.
This condition needs to be controlled by increasing interest rates which in fact reduces the supply of liquidity to the stock market. The DotCom Bubble Occurs Why does the increase in interest rates have an impact on the lack of liquidity supply to the stock market? So the story goes like this, when the central bank raises interest rates, commercial banks are immediately greeted by increasing deposit rates. It is common knowledge that deposit instruments are a very safe asset class. Start some people deposit their money instead of buying shares. This condition made many people worried because the stock price would be difficult to rise higher so many decided to sell their shares and there was a fall in the price of a number of technology stocks.
The survival of a handful of tech companies through the DotCom Bubble
A small number of companies at that time managed to survive and become technology giants today such as Google, Amazon, Netscape to Ebay and left thousands of other companies that had to go bankrupt. Well, there are many investors who speculate on these thousands of bankrupt companies so that many suffer losses. The worst thing was that there were a number of investors who went bankrupt because they invested all their wealth in companies in the internet sector at that time which were out of competition with their competitors and went bankrupt. Effects of the DotCom Bubble on the economy * The transfer of wealth from one party to another During the heyday of internet-based technology companies in the 1990s, many thought that the internet would be the future and continued to invest in similar companies. There are also a number of parties who are always vigilant and try to sell when the price is deemed too high when compared to its intrinsic valuation. The effect of the DotCom Bubble is the transfer of wealth from those who are too optimistic to those who are always alert and ready to sell shares at the highest prices. * The economy weakens.
Unfortunately, the majority of investors who are always vigilant tend to live frugally and save their money in safe instruments such as savings deposits, time deposits to government bonds. While optimistic investors tend to be consumptive but have gone bankrupt and have no money to spend. As a result, there was a significant decrease in money circulating in the community, causing the economy to re-enter a period of recession. * Impact on economies outside the United States Before the DotCom bubble burst in the early 2000s there were many investors from outside the US who invested in internet-based technology companies. Many of them are conglomerates that eventually went bankrupt so that many of their domestic business activities had to be closed. This shows how far-reaching the impact created by the DotCom bubble was on the US stock exchange.
DotCom Bubble Impact
* The DotCom Bubble phenomenon caused a serious crisis in the US economy. However, there are still many companies that survive and thrive today.
* The Dotcom company brought a new wave to the world economy of the 1990s. The value of the company increased more than any other industry in the same period and the fact that this internet business had very few physical assets it couldn’t afford. in the stock market.
* Although it does not have an accurate profit history, it still gets large capital from investors in the hope of developing the technology industry. Many dotcom companies focus solely on growth and brand recognition, with the primary goal of achieving high value in the market, despite the fact that the company sells very few products.
* Then the bubble burst, internet companies started reporting losing profits, investors moved money to other financial instruments, sell-offs and stock price drops occurred. A large number of investments were lost, recessions in the US and related countries ensued.
Lessons learned from DotCom Bubble
For investors
In the current era of increasingly advanced technology, the trend of developing digital adoption is increasingly popular. Maybe some of us understand the value of life brought by the internet. The internet itself is not bad, but it is also the cause of the bursting of the DotCom Bubble
There are many reasons for this situation, but experts say that the main reason is because of the illusion of prosperity along with limited understanding and unclear impression of the internet age.
As a savvy investor, you need sufficient information and knowledge about the field you want to be involved in. Don’t rush to invest in a flashy-looking startup, with a mission for a good future, while the operating model is far from reality. Don’t blindly chase profit, put all your faith in the magical future of the internet without understanding it, not knowing exactly what the company is doing.
The DotCom Bubble took five years to form and then burst, leaving behind many bloody lessons about the technology’s core values. It is clear that the application of technology and computers in production has become popular, making a significant contribution to the development of the US economy in particular and the world in general. Depending on each person’s point of view, you will have the right view for your own investment method.
For business
The spending trends of dot-com companies mostly show that these businesses spend a lot of money on advertising to build market share in a short period of time. Meanwhile, businesses provide products and services for free or at low prices. This makes the business not generate enough to cover expenses and causes continuous losses. This is also a lesson for business people, there needs to be a balance between income and expenses, it is necessary to ensure a sustainable source of income in their business processes.
