Event 02 · History as decisions
When every company with ".com" seemed worth a fortune
In the late 1990s investors poured money into internet companies, many with no profits, and when the bubble burst in 2000 the Nasdaq index lost about three-quarters of its value.
- The dot-com bubble
- United States and worldwide
- 2000
- 3 min read
On this page
Before you readWhat would you do?
A friend wants to put their savings into a new company because "it uses AI and the share price doubled this month". The company has no profits and few customers. What is the most sensible advice?
Pick an answer now. The file tells you whether you were right.
01The file in one minute
1The rush
Investors poured money into internet companies in the late 1990s, many with small revenues and big losses.
2The peak
The Nasdaq peaked on 10 March 2000 at about 5,048, then lost about 78% by October 2002.
3What lasted
The internet kept growing, and a few companies such as Amazon survived to become giants.
4The lesson for AI
A technology can matter while many products built on it fail. Judge each one on its own.
02Timeline
December 1996
Alan Greenspan warns about "irrational exuberance" in asset prices.
10 March 2000
The Nasdaq Composite peaks at about 5,048.
November 2000
Pets.com closes nine months after listing its shares.
October 2002
The Nasdaq is down about 78% from its peak.
2015
The Nasdaq finally passes its 2000 high.
03What happened
The internet was clearly going to change shopping, news and communication. Investors raced to own a piece of it. New companies with ".com" in their names listed their shares and saw prices jump on the first day, even when they had small revenues and large losses. In December 1996 the Federal Reserve chairman, Alan Greenspan, asked in a speech how anyone would know when "irrational exuberance" had pushed asset prices too high.
The Nasdaq Composite index, full of technology shares, peaked on 10 March 2000 at about 5,048. Then money for loss-making companies dried up. The online pet supplies seller Pets.com listed in February 2000 and closed that November. By October 2002 the Nasdaq had fallen about 78% from its peak, and it did not regain its 2000 high until 2015.
The internet itself kept growing. Some companies from the period, such as Amazon, survived the crash and became giants.
04The decisions that shaped it
Investors were right that the technology mattered and wrong about how fast it would pay off and which companies would win. Rising prices drew in more buyers, and many judged companies by website visitors or growth instead of whether they could ever make a profit. When enough people stopped believing, the fall was fast.
The AI angle: AI is also a real and important technology surrounded by hype. A useful habit is to separate the question "will this technology matter?" from "will this particular product or company deliver what it promises?"
The idea behind this caseLesson: How to keep up without burning out →
05What to take from it
- Ask how a company will make money, not only how fast it is growing.
- Be careful when a price rises mainly because other people keep buying.
- Remember that a technology can change the world while most early companies built on it fail.
- Never invest money you need for daily life in a fast-rising trend.
07 — Sources
- The Challenge of Central Banking in a Democratic Society ("irrational exuberance" speech) · Federal Reserve Board · 1996-12-05
- Dot-com bubble · Wikipedia · 2024