Dot-Com Crash

Paper Summary:

This paper discusses how many believe the root cause of the dot-com crash was overvaluation of stock prices relative to the actual underlying value of the companies themselves. It explains that stocks of internet companies traded at Price-Earning ratios of higher then 30, buoyed by a speculative bubble. When reality set in for investors, many realized that the companies that they were so heavily invested in were little more then money sucking black holes with no upside potential in the near or long term future. It explains how this in turn triggered mass sell-offs of not only internet related stocks but soon impacted the market value of many companies associated with computer, network or telecommunications industries. This paper shows, in fact, that overvaluation was more a symptom of the speculative boom and was only one of the multi-faceted factors that contributed to the internet boom turning into the Internet bust.

From the Paper:

"The casualty numbers for dot-com mania are staggering. In the year since April 2000, the technology-heavy Nasdaq has lost more than $2 trillion in value. Once high flying companies like Excite.com, have disappeared off of the charts, busted, bankrupt and out of business. During the last 36 months, 93,079 Internet-related jobs have been cut nationwide (Cassidy 2002). At least 4,854 Internet companies have either been acquired or have shut down in the three years since the dot.com investment boom peaked in the first quarter of 2000. Of these 4,854 plus Internet companies, at least 962 of them have been substantial Internet companies who have either shut down or declared bankruptcy. Unemployment figures for the San Francisco bay area, once the engine that drove the Internet economy to dazzling heights, now hovers around 7 percent (U.S. Department of Labor)."

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