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The 2000 Dot Com Bubble Burst Explained in Simple Terms.
What caused the technology frenzy? And what caused it to burst?
A new era was on the horizon. The internet has presented limitless opportunities to revolutionize the world of business and many wanted to join in either through an enterpreneurship spirit (1 in 7 Americans said they were building a business in a survey in 1999) or through acquiring stocks of internet-based companies.
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Now, to put things into perspective, what caused the bubble? The answer is excessive speculation from both institutional and retail rades in internet-based companies. The 1990s saw an explosion in internet companies which prompted market participants to buy these shares in anticipation of a further appreciation. By disregarding the fragile fundamentals, people kept buying into the bubble until it was no longer sustainable. Hence after rising about 400% during the mid-90s, the NASDAQ composite found its doom during the beginning of the new millenium by losing around 80% of its value.
The promise was that we will be moving into an economy that is based on information technology and if you were one of the first ones to invest, then you would’ve become rich by being at the beginning. The stock market culture in the United States further fuelled many to invest their savings into a field that is not very well-known to them. but why were there many internet companies?
Well, aside from the technological revolution, venture capital funds were practically investing everywhere. Investment banks that led IPOs also tried to spark more speculation and buying so that they make more money…
