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Tuesday, 11 April, 2000, 14:13 GMT 15:13 UK
Is the dot.com bubble bursting?
Technology, media and telecoms - until a few days ago these were the three magic words to excite every investor's heart.Disclaimer: The BBC will put up as many of your comments as possible but we cannot guarantee that all e-mails will be published. The BBC reserves the right to edit comments that are published.
In little over a year, the top market for technology shares, the Nasdaq, gained 128%. The spectacular stock market gains of internet firms with little revenue and no profits drove many experts to despair.
One of the most successful investors, Julian Robertson, recently closed down his Tiger hedge fund, saying he could not understand the markets anymore.
But now Wall Street's Nasdaq, London's Techmark, and Frankfurt's Neuer Markt have all suffered bitter losses.
It is likely that only a very small percentage of the dot.com 'acorns' in the market will develop into oaks - the remainder will die as soon as the initial capital income is burned up. This could have a profound impact on tracker funds and advisors who are not particular (or able to spot those which will succeed). Furthermore, as the large numbers of failures begin to show, this will have an impact on market confidence and potentially drag the successful dot.coms down too (and possibly also affect other hi-tech and more traditional companies). The same warnings exist as ever before: "the value of shares can go down as well as up". The many private investors who are finally beginning to dabble in the stock markets could soon have their fingers badly burned and dent investors confidence.
Only fools would have poured their
money and life savings in them.
Nothing last forever.
A. Meletio, USA
Look at it this way, Amazon is the biggest e-commerce company and yet as pointed out below it doesn't look like making a profit for ages and yet it is already laying off warehouse staff. It has about enough money to last for another year. In it's history, it has served 5 million customers. WOW! I would guess that many people go into WH Smith's branches in a DAY. But it has dot.com after it's name and that of course it why it is so overvalued. I can't for the life of me find a connection between huge, healthy, profitable companies like BT, Microsoft and Vodafone and some loss-making dot.com founded by a school-drop out who thinks he has a good idea.
Simon Cameron, UK
There are too many things coming together. If we want to do some business we have to fixed ourselves in this business and learn more than just a few words about it.
I feel that the news actually did a relatively good job of dissuading people from buying into dot.com companies. I feel sorry for the small people who got sucked in, there was a lot of hype but much of it was negative!
Des Currie, South Africa
Traditional business models/ concepts must be thrown out the window. The internet is part of the information revolution. It will change the way we work and do business. E-commerce will play a fundamental role in strategies. We see this but we cannot control and accept it. In business there will always be winners and losers. Dot.coms are the future, but with all these new rules and regulations, most that pick their stocks are in for a gamble.
The internet is a wonderful thing, new rules, new markets, new strategies.
Is it? Or it's just a new boom with new equipment but the same old rules with
just a different face.
The decline in tech stocks was inevitable given the current bubble. However, the emergence of internet technology not only freeing customers but business itself should not be sniffed at. True, many companies will fail when their larger capitalised competitors with established brand names enter the market - but not all. Given the scope of the internet to reduce barriers to entry, encourage innovation and improve productivity (as well as the key factors of economic growth), it seems many investors are hopeful that the winners (few) will outweigh the losers (many). The trick is to find the winners...
Business basics should still prevail in this internet investment frenzy. What happens when more of the global companies move in to the internet market with their brands, investment resources, existing customer bases and major marketing. Are the major global companies waiting for the internet customer base to expand before moving in and will we then see major price wars driving the newly established smaller companies out of the market?
One group of people
making real money
are IT contractors.
There is a big
shortage of skilled
IT staff, and many of
us in this position
are going freelance
and selling our
skills to the highest
bidder. Also the
rates for office
space and advertising
have gone through the
roof. Dot.com's are a
very expensive way
to make no money.
Phil Broeders, UK
Bubble going up.... Bubble going down. Bubble bursting...bubble not bursting. It is about time people based their investments on sound fundamentals rather than hype. This will serve as good education for the small investors (10% loss is better than 90% loss).
Isn't it curious that the main critique of the dot.com economy seems to be coming from the traditional Right. Why is the market suddenly not the God to which we all bow? Is it, perhaps, that the Right [and City, and deadwood newspapers] don't understand it? Is it also because there is an element of democratisation to the whole of the New Economy?
Just a thought
Steven Walden, UK
It seems that bursting the so-called bubble has been a mission of commentators rather than a necessary reality. They've been talked down by doomsayers. Buying shares it partly what allows a company to grow and succeed. After the fiasco of the US Government lynching Microsoft the last thing we need is pessimism over internet stocks.
E commerce will survive and dominate over time - my own company has been transformed by it. What is needed is a longer term view - no get rich quick mentality.
How wonderful (and very healthy) to see, how these hyped internet IPO's like PALM, Lastminute, World on Line, have suffered investors huge losses. Maybe this will teach people to look into what stocks they are actually purchasing. Not just following momentum.
James Holden, England
The New Economy will be an important part of 2lst century life on this planet. But, selecting those companies within this internet sector in which to invest so as to generate a stream of dividends on a long-term basis over a number of years is a difficult decision to make.
While I believe that the "Internet revolution" has gone almost as far as it can in industrialised nations, the "Third World" is nearly "non-wired". Large corporations (Sun, Cisco, Microsoft, etc.) have to make an honest commitment to individual customers, not regions or languages, or else, the bubble will most definitely burst.
Hillol Guha Roy, India
Darren of the UK, I would love to have bought into some of the good dot.coms. But no such luck unless you know the CEO or you are a big investor. I look at it as one big game and that someone is getting rich, but it sure isn't me. But again I did make a lot of money off AOL. I just happened to buy when it hit rock bottom. You know how I picked that winner; my 5 year old Russian step-daughter thought it was a cute English word. So now AOL will send her to college now!
The internet is not and shouldn't be
regarded as one big bubble. It is a
collection of bubbles, some of
which will inevitably burst and some
of which will grow and grow.
Predicting which will burst and
which will grow is the difficult part
but we should not be pessimistic
about all these new dot.com companies,
as some will be the giant corporations
of our future and we should encourage
It's obvious that the general investing public is still ignorant of the difference between internet marketing companies and technology companies like Microsoft.
Still, it's good that a hiccup on the tech market has spurred a reality check on the dot.coms. It's not the end for the dot.coms but the beginning of the shakeout. The fittest will survive and many of the fittest will turn out to be the technical arm of traditional businesses.
It seems to me the dot.coms were in for a fall anyway especially in the UK given our country's notorious habit of going for short term gain and losing interest when this fails to materialise. I accept that many of these firms are overvalued and some natural culling was inevitable but I'm not sure mass ship jumping is required just yet.
The bubble only burst because we said it will. People jumped ship because it was predicted it would burst, and the snowball started rolling. A slight jitter turned into an avalanche as everyone wants out. If you follow the first rule in share buying, only buy what you can afford to lose then the bubble bursting is an inconvenience not a disaster. Remember you've only lost money if you sell at a lower price than you bought at. If the price now is lower, just wait they'll return to high levels unless you are very unlucky.
I pity the small private investor who will bear the ultimate cost of making paper millionaires with crackpot business plans. I wonder how many people in 'the city' are playing the 'kings clothes' scenario - making fortunes talking stock up - selling at the top and then starting mass selling to start the process again?
Richard Ayres, UK
In reply to Person X. I'm a technology consultant and agree, however the big names are seeding new companies, which they own a good share in. These are ones to invest in.
As to fall from grace of the dot.com, be happy! It makes their stocks affordable, and in a few years you might just see big dividends.
Tom Donaly, USA
The tax year is about to end and a lot of business, pension funds etc need to pay out dividends. The only resource the high tech/negative profit shares is their share value.
So, the big players will have to sell to generate the cash to pay dividends and justify to their bosses how they are going to plan for the future. Therefore, some sales for dividends, some sales to reinvest in profitable companies, some retention in tech stocks and some profit for bonuses!
But the move has to be quick!
I feel sorry for those who didn't have the guts to get in. These people are clearly laughing now but how much cash have they made since September.
I agree the bubble will and should burst. There are far too much investment in companies with no prospect of even making a profit.
I can only hope that legitimate dot.coms don't feel the full brunt of this tech dive.
Stefan Potter, UK
Think about it. The internet is not going to go away. It is going to evolve. The internet today is like black and white TV was before colour TV arrived. They way we do business and shop is changing. The prospect of the dot.coms has got a little ahead of itself in terms of the market, but it will settle down. There will be winners and losers. The dot.coms are the research and development companies for the larger corporate. The best ones will be swallowed up by the big ones.
Matt Shelley, London, UK
The 'dot com' bubble is just a symptom that the stock market is going to have to radically change in order to cope with the new wave of small investors and day trading. In it's current configuration it is too vulnerable to rapid changes in 'mood'.
I think we are heading toward a big crash, this time the internet is the trigger for a blame (because majority of us don't understand the new technologies), this is the cycle that governs the law of capitalism
I don't know whether or not the
bubble has burst yet. What I do know is that the big end
of town has made it's killing on dot.com floats, then hyped them onto Joe
public at their highest peak, they've made their dough, now the punters can lose their house, for all
the big guys care.
It amazes me, sprout
on about a new paradigm in the marketplace, millions of suckers fall for it. If everyone was handed a million quid today, in six months
the same 2% of the population would have the lot.
The recent US court ruling on Microsoft has provided an excuse for so-called professional institutional investors to withdraw our pension money from the dot.com sector with at least a fig leaf of dignity. My technology stocks are all sound, profitable dividend payers and I do get irritated with the way in which so-called professional investors treat these solid stocks synonymously with the ethereal dot.coms.
Part of the problem, I believe, is that all "tech" stocks were lumped together by the media. Cisco, Microsoft, etc. are in a different league from the lastminute.com's. The former have tangible products and will continue to grow in the future, the latter will fade away and that will hopefully mark a return to some sense in the markets.
Chris Southam, UK
I've been considering using up to £100,000 of my own capital and raising £500,000 of venture capital to launch a new insurance product online.
However, even the most optimistic result of my cash flow modelling suggests that my capital will run out in no more than 4 years, yet profits won't arrive until year 7 at best.
Needless to say, I have abandoned this project for something more down-to-earth. How many other dot.com companies have business plans that will go the same way - dead in 3-4 years?
The Internet has revolutionised business to business communications or b2b in the USA. Europe/UK is behind the USA by at least 6 months.
There is an awful lot of hype behind e-business and e-commerce, but fundamentally, a lot of industry has been using Internet technology for some time, and because it works, it is not news-worthy.
Cut the hype, and use the technology - when it is "fit for purpose", the shares will find their own level as the market matures.
James Matthews, UK
The sooner this barmy rush for a fast buck from dot.com floatation's is over the better. Then perhaps we can all get on with dealing with the real benefits and opportunities the Internet has to offer.
The recent fall in the value of dot.com companies seems to suggest that the market has finally embarked on a course of correction. This was due, and to say the least, expected. The bubble is not bursting, but merely deflating to a more realistic and sustainable level. This adjustment has only now began and in the days to come will continue to fuel this debate and keep the speculators busy.
It has always amazed me how an industry with very little skill and engineering
can be worth more than so called traditional industries such as banking. As a practising
software engineer I realise that this technology is still in its infancy and as such
very unstable and unsafe for transacting huge amounts of money expected. E-commerce is
subject to over inflationary hype and too much is expected of it and currently there is no enforceable
legislation to protect your money. You never hear of children cracking the code of banks or
telecommunications networks which are built on secure engineering principles like you hear of
teenagers bringing the net to a halt or cracking private mail accounts. People should invest their
money in less riskier ventures until this technology matures.
John Franklin, UK
How on earth can an internet stock with an apparently tiny turnover (sometimes making no profit at all) be valued above asset-rich companies like WH Smith? It's ludicrous and the bubble just has to burst.
I reckon we have about a year left before some big names in the dot.com world start to falter. Amazon, for example, are already laying off warehouse staff and they only have enough money to survive for another year. It is hard to see how some of these sites make any money at all - and I for one would think twice before investing money in a web-only business.
Dave Clews, UK
Maybe the bubble should burst. How can companies that have no "product" in the traditional sense, make massive losses, with no prospect of a profit for years, be valued in the same way as Blue Chip companies like Unilever, a company that has thousands of employees and churns out respectable, sustainable profits year on year? Perhaps the stock market needs a healthy dose of reality.
The trouble is no one really knows what technology shares are worth. Things either have intrinsic value or they are worth what people are prepared to pay for them. And in the
absence of experience which defines their real value, their price will always
be subject to opinion, fashion, hype
The whole market is due for correction, not just the technology sector. So many technology companies are just ideas (good and otherwise) with no real asset value and if their bubble bursts, their shareholders will be left with nothing. As a financial adviser, I feel that technology has a place in almost everyone's investment strategy, but putting all your investment eggs in one basket is asking for trouble.
Hopefully. These stocks are so over valued it is untrue. Lastminute.com floated at 380, more realistic as a valuation would have been 3.8 or lower. I might buy when then hit this level.
The current market down-turn will hopefully inject a degree of reality into the valuations of so-called dot.com businesses. However, the internet is big at the moment and will only grow in time. Those companies involved in serving the dot.com companies and providing the infrastructure for them will continue to increase in value and importance. It is important not to tar all technology companies with the same brush.
Inaction is poison for "stock brokers" but profit for you if you want to be in a serious developing of things. If not please sell your shares and lick your wounds.
Mikko Toivonen, Finland
Just my luck, I decide to join the bandwagon and it tumbles over the edge of a cliff!!!
How can any business be worth millions of pounds when they haven't even made a profit, and worse show no sign of doing so in the coming years? In my opinion the internet based firms have always been overvalued, and what is happening now is simply a sign of the world waking up to that fact.
I have no objection to e commerce and the success of individuals finding their fortune from the web, what I do object to is the potential disaster to us all from a stock market fall, crash resultant from the failure of e-commerce to fulfil its promises. The 50% or so of the population that either have never used the internet or do not care to do so will suffer from the overly optimistic views of a few.
The recent market run-up has brought the valuations of some technology stocks into the stratosphere. Rambus, for instance, has a P/E ratio of over 800! This market correction will help slow the incoherent rise of the technology sector, but not damage it in the long run.
By the same token, there are a lot of fledgling and established IT companies that are looking at long term growth with a real business plan based on delivering real value to the end users. It is up to the investors to find these companies and make properly informed judgements. There may well be a temporary dip in the market and this should be seen as a good thing if it removes individuals and organisations looking to take people's money whilst providing no real contribution to the end users. It should also serve as a positive lesson to the greedy and the gullible.
Daryl Chapman, England
I think that a lot of people are too quick to talk about "the dot.com bubble" and "hi-tech shares" in the same sentence. There is absolutely nothing wrong with the world of PCs and mobile phones at the moment. Dot.com companies are a different thing all together, which have more in common with the world of dodgy mail order retail. It wouldn't surprise me at all if the stock market turned on dot.coms soon, but I don't think that it will affect everything else too badly.
John B, UK
The recent share falls really come as no surprise. I don't think the bubble is bursting, merely contracting to a sensible level. There is no doubt that the dot.com paradigm is the future of business, it just that the future needs to be realistically perceived. Hopefully, this is the start of that process.
Crash - no, Correction - yes. This is evidence of people realising that sendusyourmoney.com isn't going to produce returns after the IPO cash runs out. What this will do is focus investors on those companies that have real value. The ones that are or will be showing returns soon.
It seems to me that with the current tech market "crash" that a few of the genuine technology firm are now, or are heading for, being undervalued, so now may well be a good time to invest in them if you choose to take that risk. I believe the real technology firms will eventually recover from this current slump while many of the current dot.com firms head for oblivion.
Tech Stocks have taken off so well there is obviously going to be some stabilisation required to bring it back down to earth. Progress in Technology today appears infinite and what will ultimately happen is some from of re-classifying of Tech stocks. At the moment we see dot.coms classified as tech stocks but all they are just a marketing vehicle.
In the next year or two we will see the rise of traditional firms which are currently desperately undervalued. Many dot.coms will not be able to compete with them. Their first-mover advantage will be eroded quickly. David won the first set, but Goliath is awakening. Dump the dot.coms and invest in traditional companies with firm new economy strategies.
X, London, UK
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