Recessions and the Market Aftermath Part 4

The Dot Com Bubble Burst: March 2000-October 2002



The dotcom bubble was a period of rapid economic growth in the late 1990s and early 2000s. Investors were pouring money into technology companies with no clear path to profits. This led to an explosion of start-ups that went bust when investors realized that these companies didn't have any profits. The Nasdaq Composite Index peaked at 5132 on March 10, 2000 but fell by almost two thirds by October 2002.

What was the Dotcom Bubble?

The dotcom bubble was a period of time when tech stocks were wildly overvalued. It also coincided with an influx of new companies that weren't particularly profitable, and didn't have any type of business plan to speak of.

The idea behind this was that they could simply raise money from investors, spend it on advertising and marketing, and then ride their stock prices until they went up high enough so they could sell them off for a big profit—which would pay back the initial investment plus some kind of premium.

In the end though, many businesses never made any real money or had any sustainable model that would allow them to generate profits in the future... but that didn't stop people from investing in them anyway!

The Nasdaq Composite Index peaked at 5,132.52 on March 10, 2000


The Nasdaq Composite index lost nearly two-thirds of its value by October 2002 OUCH.

In 2000, the biggest technology stocks were trading at triple-digit P/E ratios and some were trading at over 1,000 times earnings

In the late 90s, people were starting to get excited about a new technology called the internet. A lot of smart money started investing in companies that had anything to do with the internet. While these investments were highly speculative, they also performed very well during this era and many investors made a lot of money.

The stock market is based on supply and demand. The more people who want to buy shares in a company, the higher its share price goes up because there are fewer shares available for sale at any given time (due to some people holding onto their shares). So as long as demand remains high for that stock or group of stocks, then prices will increase over time... until eventually there aren't enough buyers anymore!

Many companies that were burned in the dotcom crash never recovered

Many companies that were burned in the dotcom crash never recovered. Companies that survived the crash were able to generate lots of revenue by delivering what they promised: E-commerce sites like Amazon and eBay went on to become giants, while others like ended up closing their doors forever. Remember some of these name?,,,, and more…


It can take a long time to recover from a bear market.

The S&P 500 Index - January 2000-December 2002


Total Stock Market vs. Interm Bonds - March 2000-October 2002


Total Stock Market vs. Interm Bonds - March 2000-October 2002


When you're in a bear market, it can be difficult to see the light at the end of the tunnel. The market from March 2000 to March 2010 saw dismal returns in equities. Intermediate bond investors fared better than stock investors.


When it comes to stock market investing, there are no guarantees. Investors are rewarded for long-term discipline and not trying to chase the next fad or craze. The Dotcom Bubble saw many investors and companies go bust and never recover. However, not all companies lost—remember those startups Amazon and Ebay?