What is the Internet bubble? What signs can be used to judge the existence of bubbles?

Definition of Internet bubble: (also called dot bubble or dot bubble) refers to the speculative bubble from 1995 to 200 1. In the stock markets of Europe, America and many Asian countries, the stock prices of enterprises related to science and technology and emerging Internet rose at a high speed, reaching its peak on March 10, 2000 when the Nasdaq index reached its highest point of 5048.62. During this period, the market value of stock markets in western countries increased rapidly under the impetus of the Internet sector and related fields. The symbol of this period is the establishment of a group of internet COMpanies, usually called "com", and the final investment failed. The combination of soaring stock prices and buyers' speculation, as well as the extensive use of venture capital, has created a hotbed, which makes these enterprises abandon the standard business model, break through the bottom line (traditional model) and focus on how to increase market share.

Signs of bubbles:

Venture capitalists have witnessed a record rise in the share price of Internet companies, so they act faster and are no longer as cautious as usual. They choose to let many competitors enter, and then the market decides the winner to reduce the risk. The low interest rate of 1998-99 helps to increase the total amount of start-up funds. Most of these entrepreneurs lack practical planning and management skills, but they can still sell their ideas to investors because they have the novel concept of "network company".

A standardized "dot COM" business model relies on continuous network effect to gain market share at the expense of long-term net loss operation. The company expects to establish enough brand awareness in order to make profits in future services. The slogan "Become bigger quickly" explains this strategy. During the loss period, the company relies on venture capital, especially initial public offering (raising funds) to pay its expenses. The novelty of these stocks, coupled with the difficulty of company valuation, pushed many stocks to a jaw-dropping height, making the original controlling shareholder of the company rich on the books.

The decline of the internet bubble:

In March 2000, the Nasdaq (Nasdaq Composite Index), which is dominated by technology stocks, climbed to 5048 points, and the network economy bubble reached its peak. From 1999 to early 2000, the Federal Reserve raised interest rates six times, and the derailed economy began to slow down. The bubble of network economy began to burst on March 10. On that day, the Nasdaq composite index reached 5048.62 points (5 132.52 on that day), more than doubling the figure of a year ago. Nasdaq? After that, it began to fall slightly, but market analysts said it was only a correction in the stock market. The stock index reversal and the subsequent bear market may have been triggered by the trial of the federal government v. Microsoft. The trial result of Microsoft monopoly was widely speculated a few weeks before it was officially announced on April 3.

One possible reason for the collapse of Nasdaq and all Internet companies is that on the morning of the first trading day (Monday) after the weekend of March 10, a large number of multi-billion-dollar sales orders flowing to high-tech stock leaders such as Cisco, Microsoft and Dell just appeared at the same time. As a result of the sell-off, NASDAQ3 fell from 5038 to 4879 as soon as it opened on March 3 13, a full drop of 4 percentage points-the largest percentage of the "pre-market" sell-off in the whole year.

On Monday, March 13, the processing of large-scale initial batch selling orders triggered a chain reaction of selling-investors, funds and institutions began to close their positions. In just six days, Nasdaq fell by nearly nine points, from 5050 in March 10 to 4580 in March 15.

Another reason may be that in order to cope with the Y2K problem of computers, it has increased the expenses of enterprises. After the new year, enterprises will find all the equipment they need for a while, and then the cost will drop rapidly. This has a strong correlation with the US stock market. The Dow Jones index closed at 1 1722.98 on June 5,438+1October 4, 2000, and once reached 1 1750.28, the theoretical peak11. On March 24th, 2000, the Standard & Poor's 500 industrial indexes closed at 1527.46, with the highest intraday value of 1553. 1 1. More importantly, the FTSE 100 index in the UK reached the highest value of 1999 of 6950.60 on the last trading day. After that, it began to freeze recruitment, layoffs and even mergers in several industries, especially in the Internet field.