It was five years ago last Thursday that the party finally staggered to an end. With one last sip of the heady brew that had sent stocks ever higher over the past five years, the US NASDAQ index peaked at 5,048.62.
By March 2000, the NASDAQ had eclipsed the traditional measure of valuations on Wall Street -- the Dow Jones Industrial Average. Whereas the Dow contained all the fuddy-duddy symbols of the old US, the NASDAQ was where the high-tech spawned by the new paradigm economy were traded.
Alan Greenspan, chairman of the US Federal Reserve, had warned against "irrational exuberance" in 1996. He believed in the transformative power of new technology but said there was a risk of investors getting carried away.
Ultimately, share values have to be based on profits or dividends. By early 2000, the price of new economy stock hugely exceeded any likely earnings, and Wall Street was as overvalued as at any time in its history.
Investors were told there was unlimited money to be made out of the dotcom revolution -- and that was true, until the point where there were no longer more buyers than sellers. The market reached that point in March 2000, since when the NASDAQ has lost 60 percent of its value and millions of small investors have suffered.
As the tide went out, it left behind its flotsam and jetsam of hucksters, snake-oil salesmen and outright criminals.
In retrospect, there were signs of trouble brewing. The Fed, for instance, had been prompted into action by the scale of the boom, keeping rates artificially low in 1999 because of fears of the Y2K bug but adopting a more aggressive line once it was clear fears of a meltdown had been exaggerated. Borrowing costs went up by a percentage point between February and May 2000.
A second straw in the wind, a characteristic of booms that have run their course, was the biggest merger to date, between America Online and Time Warner. In reality, AOL cashed in on its sky-high valuation before the crash, gaining tangible assets. It was never worth the US$350 billion boasted of at the time of the deal's announcement, and the merged entity now has a valuation of US$80 billion.
In the UK, Freeserve, Baltimore Technologies and Psion were elevated to the FTSE 100 in early March, just as one of the City of London's last remaining bears threw in his hand. Fund manager Tony Dye -- dubbed "Dr Doom" by the bulls -- resigned from Phillips & Drew at the very moment his predictions were about to come true.
In the US, the trigger for the crash was thought to be an article headlined "Burning Up" in investment journal Barron's, which raised the possibility that at least 50 quoted high-techs could run out of money before the year was out. The article coincided with one of the best-timed book launches in history: the release of Irrational Exuberance by Yale economist Robert Shiller, exposing the shaky underpinnings of Wall Street.
March 2000 was the start of a three-year bear market that slashed the value of pensions and endowment policies.
The economic fallout was, however, much less damaging than after the Wall Street Crash of 1929. Different explanations have been suggested -- such as that the subsequent bounceback reflects the buoyancy of the capitalist system, or that policymakers learned from 1929 and acted to combat recessionary forces by cutting interest rates and allowing budget deficits to grow, or that loosening policy flooded the markets with liquidity, allowing a new bubble to inflate in real estate.
But there has been no great escape for the small investors. More than ?8 billion (US$15.3) poured into tech funds in February and March 2000, much of it into Isas offered by Aberdeen, Henderson, SocGen and Jupiter. Aberdeen alone took ?506 million in the first 12 weeks of 2000 into just one fund. Today that fund has lost 82.4 percent in value -- despite the recovery in stock markets since March 2003.
Few, if any, investment managers emerge with distinction. About 30 retail tech funds were launched in 1999-2000, backed by startlingly confident investment predictions. Many have since shut down.
Research by advisers Bates last week found someone who invested their ?7,000 into the average tech fund in March 2000 will now be sitting on ?1,521.10 and would need growth of 360 percent just to recoup their losses. Even at an annual growth rate of 10 percent, this will take 16 years.
But investors are not hanging around -- each tech revival is greeted as an opportunity to get out. Some are burned, and never return to the market.
It was in the Internet chatrooms spawned by the very technology behind the boom, the frenzy was at its worst -- more than 200,000 small investors rushed to buy shares in Lastminute. On March 14, 2000, the 19-month-old firm came to the market at ?3.80. On the first day of trading it soared to ?4.87, producing a value of more than ?800 million when its revenues were running at only ?1.5 million a year.
Small investors were furious. They bombarded chatrooms, angry at allocations of only 35 shares each when big City institutions scooped up millions. But within a fortnight those shares fell below their issue price -- and carried on plunging to below ?50 by 2002.
Some investors burned in the boom are now buying into commodities, oil and resource stocks. When one bubble pops, it's never too long before the next one blows up.
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