An advantage of a stock bubble

According to Kaylie Pferten, although we typically think of stock bubbles as negative, they can also have positive effects, as demonstrated by the com craze

Perhaps we should commemorate the occasion by "surfing" the "world wide web" for a few minutes, ideally with a Netscape browser on a dial-up connection that lags every few minutes. It is officially the 25th anniversary of the .com bubble.

It was one of the most significant stock market bubbles ever. After doubling within a year and increasing fivefold in five years, the Nasdaq peaked at 5,048 on March 10, 2000. A surge of interest in early-stage tech stocks had propelled it higher. It experienced a spectacular collapse over the next 12 months, losing 75% of its value.

The time was filled with a great deal of craziness. Suddenly, any company that could use the word "online" in its name was extremely valuable. Venture capitalists were vying for hundreds of millions of dollars from entrepreneurs who had just graduated from college, and companies could list their shares using the most basic business models.

Everybody was leaving their jobs to work for a start-up. As they engaged in a "land grab" to acquire "eyeballs," the heavily financed companies took great pride in their "burn rate."

Even though they had few real customers or revenues (only four of them remain today), 14 .com companies ran ads during the 2000 Super Bowl, spending an average of £22 million per spot. It was a moment of unbridled excess. Many people lost their money, while a select few made a lot.

One thing has become evident after 25 years. Although the .com craze may have gone too far, there are still four significant ways in which it is helping us.

First, it spurred a surge in digital infrastructure investment. The web was excruciatingly slow in its initial iteration. Dial-up connections were slow and prone to failure. They were primitive search engines. Numerous websites lacked professional design and were amateurish.

All of that was changed by the massive capital flow that the bubble unleashed, which led to the development of the sleek and quick broadband connections that we are accustomed to today, as well as web-connected smartphones. The bubble's "irrational exuberance" is what caused this to occur so swiftly.

Second, a new entrepreneurship model was produced by the bubble. A whole generation felt that launching a new company was a logical career choice, and they had access to a wealth of new resources to get them started. More importantly, the bubble gave rise to new financing options that accelerated the growth of those upstart businesses. We now have a culture that is far more entrepreneurial than it was prior to the bubble popping.

The last laugh was reserved for the most courageous investors.

Lastly, investors made a significant profit. A lot of businesses failed, and the shareholders lost everything. Nevertheless, a lot of the other "crashes" now seem archaic. Amazon, which was still a small online bookstore at the time, "collapsed" by nearly 90%, but even if you had purchased at the height, you would have made a fifty-fold profit over the following twenty years.

You would have received a 100-fold return if you had invested in Apple, which is still a loser in the PC market, at its height. This also applies to numerous other stocks that seemed to have been completely destroyed at the time. Since the peak in 2000, the Nasdaq as a whole has more than tripled.

As long as they had the patience and fortitude to weather the crash, any investors who entered the market when it was taking off would still have made a sizable profit. They would have produced more if they had the guts to purchase it as it was falling apart.

At the time, the bubble burst, which seemed like a disaster. Additionally, many people came to the conclusion that the internet was merely a passing trend. However, it is evident now, 25 years later, that this technology was truly revolutionarypossibly even more so than even the most optimistic forecasts in 2000.

It brought about new goods and services and methods of delivering them that had not been considered prior to its creation, altered the way the economy functions, and had an impact on all types of businesses.

In retrospect, it is evident that the .com crash was only the beginning of a technological revolution, and its effects on society and the world economy continue to benefit us today.