Get large or get lost
IDEA No 65
THE DOT-COM BUBBLE
In 1637 the price of a single tulip bulb was ten times the average annual income. Many investors were ruined by the drastic fall in prices that followed. ‘Tulip mania’ was the first recorded speculative bubble.
When investors buy shares because of rapidly rising prices, rather than because the shares are undervalued, a bubble occurs. Sooner or later that bubble bursts.
This is exactly what happened during the dot-com bubble of the late 90s. Low interest rates, easily available venture capital and rapidly rising share prices meant traditional measures of company performance were ignored. The accepted dot-com model was to expand a customer base as rapidly as possible, even if it produced large ...
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