In 2000 and 2001, when the Nasdaq, the tech-heavy and internet heavy index flush with all the zooming dot coms, crossed over into the stratosphere beyond 5,000, with Yahoo (when it seemed to better know how to operate), for example, at more than $100 a share, and many other dot.coms along with them. They were propelled by a Viagra-like “future effect,” along with the heady winds of day traders who could log in, then buy and sell a portfolio worth of dot.coms in the span of a few hours.
This was a time when the prospects of the internet stocks was looked upon as unlimited, as investors and traders alike piled into the group, often indiscriminately. “What does the company do?” “I’m not sure, but the stock is going up,” was the common refrain. And despite Al Gore’s painful attempts at educating everyone about it, some people (gasp!) were not only not on the internet, but didn’t even know what it was. Fortunes were made, no doubt. Day trading was hailed as The Next Great Thing. Or cursed. Day traders were regarded as the bane of the market by some; an evil virtual empire, tapping out fortunes with the touch of a keystroke. Why, individuals were using computers to trade and invest—just like institutions of professional investors.
Not all investors were onboard. As usual, Warren Buffett wasn’t who said he didn’t even invest in technology stocks let alone internet stocks. It’s been forgotten if Buffett said he even owned a computer. Anyway, the dot.com craze was likened to the historic speculative manias, as if “something dot com” was just another craze, like the Holland Tulip Mania.
So what was the lesson, if anything, about an index that was gashed almost in half a few months later, then continued to trend down to below 1,500 in the next couple of years? You’ve heard of broken stocks? This was a broken index.
The internet and technology, and their stocks that represent these companies, did not prove to be a fad, but the massive re-pricing of such assets gave enough and varied lessons to anyone who wanted to find them. With the current Nasdaq at under 2,300 and never having risen to as high as the 3,000 level since its comedown, you can take home whatever you want: stocks don’t go up forever, you can make and lose vast sums of money on market excesses, you can see stocks you wished you had bought or wished you hadn’t bought, and just about any other related lesson you want to state, all under the rubric of caution. Fill in the blanks, they’re all true, though different traders or investors will emphasize different ones. One thing everyone can agree on: that was a real market event, and it should be recent enough still so that everybody can understand that the markets will do what they will, come what may; that they don’t obey our wishes.
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