The Burst of the Dot Com Bubble

In March 10, 2000, the NASDAQ index dropped from 5132 to 5048.62.  The market analyst thinks it is only a small correction of the market. But it turned out to be the beginning of the disaster.  From that day, the index began to decrease at an average speed of 11.3%. After 18 months, the investors were done in the dump.

 

 

It was like a dream of investors of NASDAQ index, from October 8, 1998 to September 21, 2011. They dreamed that the index reached 5130 point. But after waking up, it found that the index was still at 1420 point.

There are several incentives for the whole collapse like:

Large sells of leader enterprises appeared in March 10, 2000. This not only led to a chain reaction, but also raised panic.

Microsoft was accused of monopoly in 1997 and Gates resigned in January, 2000. In April 2000, the court declared that they have found evidence of the behaviour of monopoly of Microsoft. Microsoft was faced with being split off at that time. This further increased the panic.

Top analyst of Goldman Sach suggested to underweight the stock of internet corporations, which was the first time in 10 years.

Wrong incentives at wrong time as long as the underlying problems that did exist led to the eruption of the crisis. The stock price that used to be quite unreasonable began to fall. Companies that made their living by being financed can no longer find the money. Many companies were shuttered and many IT engineers lost their jobs.


When the dot com companies run out of money, most of them were being merged or wind up. Big financial institutes like Citi and Merrill Lynch were fined for mislead the investors (we will talk about it later).  More than $5000B fund were evaporated from the stock market between March 2000 and October 2002. According to the recent research, there were only 50% companies survived after 2004, like Amazon and EBay.

Since then, IT industry seems no longer be the focus of the society. An interesting phenomenon is that after the dot com bubble, fewer students want to gain a degree of computer engineering. In the 1990s, enrollments grew rapidly in information systems and computer science. Then, beginning in 2000 and 2001, enrollments declined precipitously (Panko 2008).

But after that, where do moneys go? The housing market?

So far, we have talked about the three stages of the dot com bubble. We’ll talk about what caused the dot com bubble in the following days. In the next blog, I’ll work into details about the relationship between the dot com bubble and condition of the credit market at that time.

Reference:

 

Panko, Raymond R. "IT employment prospects: beyond the dotcom bubble." European Journal of Information Systems 17.3 (2008): 182-197.