The Nasdaq crash

During the mid to late 1990's computing technology was advancing rapidly, the most notable innovation was the internet. The internet became immensely popular as individuals and organizations quickly recognised its potential. Many companies rushed to commercialize this greenfield opportunity, attracting a lot of attention with some high profile success stories. Startup companies easily attracted capital as investors became infatuated with anything internet or technology related and threw money at these companies without questioning the viability of the businesses they were funding. During this time it was not uncommon to see the share price of a dot com rise by hundreds or even thousands of percentage points as the Nasdaq index rose from approximately 1000 to over 5000 in four years.

In the year 2000 reality quickly set in as investors suddenly came to the realization that they were caught up in a bubble and euphoria turned into panic. The 10th of March 2000 saw the Nasdaq Composite index peak at 5048.86. Both professional and amateur investors quickly realized that the bubble had burst and progressively sold down anything internet or technology related. Over the course of the next 2.5 years the Nasdaq Composite index dropped from a peak of 5048.86 to a low of 1114.11 for a loss of 78% causing approximately $4.2 trillion of shareholder wealth to be lost.


The Nasdaq (or dot com) crash is a textbook example of a stockmarket correction ending a speculative mania.

With the benefit of hindsight, the warning signs were painfully obvious. The Wall Street cheerleaders extolled the virtues of the 'new economy' saying 'this time it's different' and traditional valuation methods were no longer relevant. The majority of dot com companies had no earnings, yet they commanded extraordinary valuations. Speculation was rampant amongst the general public, with scores of individuals giving up their regular jobs to become online daytraders.

The aftermath of the Nasdaq crash was far reaching. Millions of technology workers lost their jobs, stock options and life savings, investors were decimated as many internet companies became worthless. The economy went into recession in 2001 as the Federal Reserve repeatedly lowered interest rates in order to stave off deflation and stimulate the economy. The effects are still felt in the present day as some particular sectors including technology, telecommunications and internet are still out of favour with investors.

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