Why This Tech Bubble Is Worse Than The Tech Bubble Of 2000

Ah, the good old days. Stocks up $25, $50, $100 more in a single day. Day trading was all the rage. Anyone and everyone you talked to had a story about how they had made a ton of money on such and such a stock. In an hour. Stock trading millionaires were being minted by the week, if not sooner.

You couldn’t go anywhere without people talking about the stock market. Everyone was in or new someone who was in. There were hundreds of companies that were coming public and could easily be bought and sold. You just pick a stock and buy it. Then you pray it goes up. Which most days it did.

Then it ended. Slowly by surely the air came out of the bubble and the stock markets declined and declined till the air was completely gone. The good news was that some people were able to see it coming and get out. The bad is that others were able to get out, but at significant losses.

If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it’s worse today.

In a bubble there is always someone with a “great” idea pitching an investor the dream of a billion dollar payout with a comparison to an existing success story. In the tech bubble it was Broadcast.com, AOL, Netscape, etc. Today it's Uber, Twitter, etc.

To the investor, it's the hope of a huge payout. But there is one critical difference. Back then the companies the general public was investing in were public companies. They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.

The bubble today comes from private investors who are investing in apps and small tech companies.

Just like back then, there were always people telling you their idea for a new website or about the public website they invested in; today people always have what essentially boils down to an app that they want you to invest in. But unlike back then when the dream of riches was from a public company, now it's from a private company. And therein lies the rub.

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Stock Fan 5 years ago Member's comment

Great post, I really enjoyed this.

IB Trading 5 years ago Member's comment

Private markets are definitely dangerous places. Good thing we don't have to worry about lack of liquidity.