Crashes & Crises
What Happened
The Dot-Com Crash refers to the collapse of internet-related stocks from 2000 to 2002 after an intense speculative boom.
In the late 1990s, enthusiasm for the internet drove massive demand for tech companies with little revenue and no profits.
IPOs doubled on their first day, startups raised capital on ideas alone, and valuations focused on “eyeballs,” page views, and user growth instead of fundamentals.
When the Federal Reserve raised interest rates and investors questioned sustainability, sentiment reversed.
The Nasdaq Composite fell nearly 80% from peak to trough.
Hundreds of companies failed, trillions in market value evaporated, and one of the most euphoric market periods abruptly ended.
What Drove the Crisis
Capital oversupply: Venture capital and public markets poured money into startups at unprecedented rates, encouraging growth over profitability.
Weak business models: Many companies had no clear path to cash flow and relied on advertising or customer acquisition strategies that never produced sustainable returns.
Valuations detached from fundamentals: Traditional metrics like revenue and earnings were dismissed; multiples implied unrealistic long-term expectations.
Rising interest rates and sentiment shift: Fed tightening reduced risk appetite. Investors realized many firms would never become profitable. Liquidity dried up and capital-dependent companies collapsed.
The decline reflected expectations outrunning economic reality, not a failure of technology itself.
Investor Lessons
Innovation can be real while valuations become irrational.
Cash flow, margins, and unit economics matter more than narratives or hype.
Rising rates expose weak business models dependent on cheap capital.
Market psychology can push prices to extremes, especially in new sectors.
Disciplined valuation and focus on durable economics help identify the companies that endure.
The firms that survived—like Amazon and Google—had real business models and long-term viability; the rest disappeared when funding dried up.