Conclusion

The dot com bubble was one of the major bubbles the world had faced. Although there is no exact reason of finding on what actually caused the bubble the mass investment was one of the basic reason behind the bubble. The imagination of investors that the technology market would never fail and thus making huge investments could be one reason.

Another reason could be due to the companies issuing public offerings without any stable strategy or plan. The companies were merely trying to portray higher earnings which often did not even exist. Perkins (1999) supports this in their paper 'The Internet Bubble' where they analyse how charisma of technology and immediate success created a revolution in the whole market.

A short documentary about Dot Com Bubble  (.com/bubble)

The Bubble Burst

The bubble continued to grow at a dangerous pace until the 2000's. By 2000 the investors slowly started realising the fact that the current situation was actually just a bubble forming up that could explode any time. Soon, the NASDEQ went down to a steep 2000 from 5000 which was one of the first major setback for the investors. 

Many companies like the Pet.com which had a quite high market capitalization value worth billions just disappeared from the market completely  The entry and exit of such companies were all of a sudden just like a bubble. The value of the stock market plunge down by many trillions which created a situation of panic among the public. By 2002. The value of NASDAQ further went down to a mere 800. Share prices of most of companies fell drastically.

The bubble era also witnessed the exposure of many accounting scandals that were prevailing during the period. Most of them involved companies inflating their earnings to a very high unsubstantial amounts.

Diagram 4 : Chart of Dot Com Technology Bubble

A Brief Look Back into the Bubble Era

The stock market situation in the 1990's period cultivated an idea of a New Economy in the minds of the economists. They imagined an economy where there was no failure of companies or any evidence of inflation at all.

The main reason for this was most of the companies were going public and the public were always ready to purchase shares of any internet based company. Whereas many of the companies dint even have a clear strategy to focus upon. They just tried and copied when other companies in the filed made an IPO and was successful. A significant example was that of the online pet products store Pets.com which was about to fail and exit the industry. At this point the company offered their shares for public subscriptions which turned out to be much sought after by the public thus enabled the company get back into the market. 

Diagram 3 : Visual representation of market crash

The Dot Com Bubble

Personal computers by Intel first set fire for a new revolution in the market. IBM introduced its first pc in 1981 which played a very significant role in the revolution. The production of such computers doubled up to five times in five years to fifteen million per year which further led to reduced prices and lower revenues and profits. 

The first form of internet was the DARPANet that was initially created by the government agencies for transferring information of official nature across various locations. Later it was in 1994 that the internet was made available to the public and people started using it for their personal activities.

The main Highlight of the dot com bubble was the soar of the Internet media as a whole. The economy started relying more on the internet for their business and also personal improvement. The wide spread  use of the internet lead to an increase in the number of new websites being created and a tremendous development in the complete Information Technology sector. Companies started to perform the ‘’Prefix Investing’’ which involved the attaching of the ''e'' before or a ''.com'' after their names to attract the public and thus increasing the stock prices for their shares.

Diagram 1 : Graph showing the number of website from 1990's to 2007 

The above chart clearly depicts the sharp increase in the number of new websites created from the year 1990 - 2007.

In 1994 the first online book store Amazon came into existence. Later there came Yahoo which was first introduced as a search engine and also Ebay which was an auction site gained popularity. In the year 1999 AOL stood with a market capitalisation of $140 billion which was a very high value. Similarly, Terra Networks quoted a capital of £25 billion without any profits. 

Shiller describes the unprecedented nature of the new internet technology:

 "The internet is comparable in importance to the personal computer or, before that, the television.  In fact, the impression it conveys of a changed future is even more vivid than that produced when televisions or personal computers entered the home.  Using the internet gives people a sense of mastery of the world.  They can electronically roam the world and accomplish tasks that would have been impossible before.  They can even put up a website and become a factor in the world economy themselves in previously unimaginable ways… Because of the vivid and immediate personal impression the internet makes, people find it plausible to assume that it also has great economic importance."

As the internet developed more and more people started relying on it which led to an obvious increase in demand for the stocks of the companies.The long bonds in the U.S had risen up to prices that were not reached ever before. In the year 1987 the S& P 500 was about three times ( 336.77) the closing low that was 5 years ago (102.42).  

 In 1990's the NASDAQ's   price earnings were at its highest ever after it was established in 1971. All over the world internet company shares were traded at about 5 times its revenues. This enormous increase in the NASDAQ helped many tech-focused firms turn wealthy steadily . Many of the investors and employees of technology companies turned wealthy soon by Initial Public Offering. There were also instances wherein employees were receiving their pay  in the form of stock options. These were all pointing out at a clear situation of irrational abundance.

Diagram 2 : Graph of Peak and Valleys

Introduction : Bubbles

The term bubble initially originated from the company South Sea Bubble in the early periods of 1711-1720. It was originally the company’s name and did not mean the crisis itself. The name bubble was given for this phenomenon as the stocks were inflated like a bubble and becomes absolute nothing once it bursts. Bubbles are believed to be very risky as it cannot be identified in its starts and leads to heavy damages when it breaks.

The dot com bubble was one of the internet based bubble that arose during the 1990’s and continued till 2000. The stock of the internet based companies were at their peak leading to a steep shoot of the stock prices. 

10 most prominent bubbles the economy ever witnessed :

1. Tulip Mania
2. South Sea Bubble
3. Rhodium Bubble
4. Railway Mania
5. Romanian Property Bubble
6. Mississippi Bubble
7. Florida Land Boom
8. Poseidon Boom
9. Dot Com Bubble
10. Uranium Bubble