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