2000. The start of a new millennium! It was meant to be brimming with newness and beginnings. Instead, it marked a bleak period in our financial history when the dotcom bubble popped. Investors lost gazillions, companies went bust, people lost their jobs and the lights were turned off in the tech world. Are we in something scarily similar?Â
Between 2000-2001, Amazonâs share price went down by 80% while Apple lost almost 60%. In 2000, the Nasdaq lost almost 40% of its value. The share prices of these now-juggernauts took years to recover from the tech carnage that the year 2000 brought.Â
The average, retail investor was often left holding the bag. And a very tiny one at that. I personally know people who lost crazy amounts (back then). But the retail investing space was not what it is today. Thanks to apps like Freetrade and Robinhood, investors can now access stocks at the click of a button and with fractional trading you don’t need big bucks to get started with investing. So, as you can imagine, a stock market crash is more painful for the average Joe now than it probably would’ve been back then.
How does this year’s crash compare?
This year, the Nasdaq fell by 28% – so weâre almost there! And I can name a handful of tech companies who lost similar amounts to what Amazon & Apple lost during the dotcom bust. Meta -67% this year, snowflake -56%, palantir -59%, unity software -74%, snapchat -80%. So I totally get the comparison being made to 2000. These are massive numbers. I mean for a company to lose 80% of its value in one year is kinda nuts. Though read here why times like these can represent the best buying points.
The trouble is when investors ignore history thinking âthis time is differentâ and as we have seen, these 4 words are the most dangerous. They force you to block out info that would seem to contradict what you think (or the stocks you own!) and cast doubts over your strategy. And no one likes to be proved wrong. We sort of shove it one side, pretending like it doesn’t exist. Thinking that if we don’t focus on it, it won’t materialise.
They’re more alike than you realise
Many of these companies, like their 90sâ counterparts, also went public when sentiment for tech was booming. Just look how many people backed tech, invested in tech and dreamt of tech. VCs were dishing out money to tech guys like it was candy.
The thirst for tech – and investing more broadly – meant that millions opened up brokerage accounts. After all, they didn’t wanna miss out on all the fun, right?! I bet you can name at least 20 people in your circle who opened up brokerage accounts since 2020.
In Jan 2021 alone, more than 6 million Americans opened a retail trading account! If that doesn’t smell like peak-bubble then I dunno what does! Though, read here why 21% of Gen Zers and millennials have shut down their accounts this year.
Perfection, forever.
What makes bubbles alike is that investors think perfect conditions will last forever. Flawless. But thereâs always something that ends up popping this belief.
Investorsâ greed, FOMO and whatnot caught up with them. In the dotcom boom, it was internet stocks that investors fell in love with. They couldnât get enough of it!
Pets.com stock had fallen from its IPO price of $11 per share in February 2000 to $0.19 the day of its liquidation announcement. You do the math! A whole lotta value was wiped out within a matter of months.
This disaster of a company – but more embarrassingly were the investors who put their money behind it. This company managed to attract tons of money just by adding â.comâ to its name. The very thing that they knew investors would lap up. This company lost money on every single sale.
We think we won’t, but we do
Looking back, I bet weâre all saying what a bunch of clowns they were. Who would back a company with no revenues, just a fancy name tag? We laugh and yet that’s exactly what we did (cough, cough FTX and all the other load of nonsense). Anything relating to crypto/blockchain and you immediately earned yourself a 8-figure price tag. At the very least!
The FTX blow-up is the story that really brought it all home
How on earth did SBF (even the abbreviation of his name makes him sound like a real cool tech bro) manage to fool investors and literally everyone else?
For starters, his hairy mane, t-shirts and sneakers were enough for investors to go, yup, he understands tech. Because someone in a starched suit (or anyone remotely well-dressed for that matter) couldnât possibly understand tech. Right?!
Institutional investors who got burnt by investing in a fraudster will have scars and trust me, they wonât be turning to crypto anytime soon. This is not good. Institutionals have the big bucks. Theyâre the ones that provide the much-needed capital for these companies to go on and do cool (and hopefully legal)! Things. But if theyâre too scared (and scarred) to invest, we could be waiting a while before things start to move again.
Thank you, interest rates!
As weâre seeing, higher interest rates are kindly flushing out a lot of the garbage and are resetting valuations to more normal levels! As JP Morgan CEO Jamie Dimon said, when asked whether valuations would ever return to the (crazy) levels we saw in 2021, he said yes. In the next bubble!Â
When weâre in the bubble, we canât see anything else apart from euphoria and flawless futures for companies. Itâs only when the air escapes do we realise how wrong we were. Read here why you’re unlikely to get your doughnut delivered to you by a flying taxi anytime soon!
But don’t give up on tech just yet!
Everything can be digitalised at weâre at the beginning of our economyâs change and transformation but we have a long way to go. These things donât happen overnight. These are still opportunities everywhere. Just be glad most of the froth has largely disappeared. Now you can bag some tech at more normal price tags.
Because, as most investors seemed to have missed in this tech bubble numero deux, price is also a risk. If you buy at a high price, you have to be damn sure its earnings will keep on growing to support ever higher share prices because itâs earnings that drive prices NOT the other way round!
As a 20-something, who doesnât have that much invested, Iâm grateful that this bubble popped now. Not in 10 yearsâ time when Iâd (hopefully) have way more at stake.
Sometimes the universe slaps us when weâve become too greedy. No doubt, this will happen again. And again. And again. That’s human nature for you. We’re way too quick to forget. But just be lucky weâre living through this now so we can learn – and see – the lessons for ourselves, however painful.
In 2000, I wasnât even talking let alone walking! Thereâs no way reading about the tech collapse would have the same impact as actually living through it.
Our gen has learnt to embrace tech – through its rise and fall. And weâll be all the most resilient for it.Â
Allow yourself to remain open-minded and donât shy away from investing in an industry. Tech is evolving and you want to be invested in it.
Lucky for us, we get to bag it at a cheaper price.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.
Knead Your Dough 