If you’re wondering what the DOT Com Bubble was, you’ve come to the right place! The DOT Com Bubble or the “Internet Bubble” may seem like a historical time period however it happened in the early 2000s when the Internet was a new phenomenon. As any new technology, there is a hype train associated with the adoption of the technology. With the internet integrated into the essence of our lives, it’s hard to understand why there was a bubble or a crash since the internet definitely did succeed! Let’s understand what caused the DOT Com Bubble and the lessons to take forward.
Causes of the DOT Com Bubble
- Unrealistic expectations about what the Internet could do. For every successful multi-million dollar internet company, there were hundreds of failed organizations. However, the hype train around what the internet could do and the false promises made by many left investors believing that a lot more was possible in the short span than reality.
- Investors invested based on trends and not financial fundamentals. Sound familiar? Investors invested in overvalued companies and did not review the fundamentals such as P/E ratios, business models or even how the company was making money.
- Lack of research and understanding of the phenomenon. It’s easy to state that when the internet did not exist, information channels mattered a lot! Where one received their information or source of truth, depended on several factors. With this hype train, there was a lot of “fake news” and exaggerated realities being exposed to the investors.
Lessons Learned
If you’re reading the causes of the DOT Com Bubble and eerily relating it to certain phenomena today, you are not alone! As they say, history repeats itself despite the technological advances we’ve had. However, there are important lessons to be learned and applied in today’s economy.
- Technology is an amazing thing. It can help so many people and provide positive results however, there is a hype cycle associated with each of these technologies. There will always be early adopters that believe that the technology is revolutionizing and it will be the next big thing. Take it with a grain of salt and understand the practicality of the applications. Each technology has a curve that it rides in order to become an everyday trend. Like Rome wasn’t built in a day, technology does not integrate into our lives so easily.
- Investing is a science and the fundamentals must be followed. ALWAYS do your due-diligence to understand the financial state of the companies you invest in. If you are riding the hype train and trusting the word of mouth, prepare for the risks as well.
- Popularity does not equal profits
- Research, research, research! Now with the internet being highly accessible, we have the ability to easily verify information and analyze the fundamentals. However, there is a lot of misinformation out there. One must filter through the information to go past the conversations and sentiments to the fundamentals.
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