Lessons Learned from The Internet Stock Craze (Year 2000 Y2K Edition)

I was reminded this morning of a hot IPO in Canada during the peak of the Internet craze in Feb/March 2000. One firm took a company public at $11.00/share, intending to raise $10-15mm. Even before the deal was closed, the stock was over $20/share and the book had been upsized to $50mm! There was over $80mm in demand and accounts were screaming, "If you don't let me in this deal I will never ever do another deal with you again!" The deal was done and the money raised. Problem was, there was a four month hold on the stock. By the time the hold period came off the stock, the quote was around $8.00. The Internet meltdown was in full swing. The stock ultimately traded down to $1.80 even though there was about $3.00/share in cash. The firm was later purchased for just over $3.00/share. Insiders made money, as did the brokerage. Those were crazy times, and some money managers lost their jobs as a result of this IPO (and other crummy deals). What is ironic about it all is that the craze of the day was young, energetic whiz-kid CEOs that the market adored. After this particular company went public, the 30-something CEO appeared on television. He talked a big game, used lots of buzzwords, but after the segment ended no one spoke. Everyone collectively and simultaneously realized they had been sucked into the hype. Not long after, the real stock price slide began. Around the same time, a colleague of mine borrowed money to play the markets. He turned a $5,000 loan into over $750K, only give back nearly 2/3 of it. It was so crazy that you would put in an order to buy a stock and have no idea what price you would be filled at. Market orders were the only way to buy stock as the market was moving so fast. Even if you overpaid by a few dollars a share it didn't matter because the next day and the day after stocks just kept going up. Even after the dispersion top and the blowoff, stocks rallied back in an attempt to reclaim the old highs. But they didn't make it, and then it was over. The window closed and then there were two kinds of companies: those who raised money and those who didn't. Sadly ironic was that mining companies were selling off mining properties as fast as they could to re-invent themselves as tech companies, only to buy back the properties at 10x the price a few years later. Everyone was so keen on the Internet revolution they forgot to ask how the revolution would run without raw materials. Thus enter the commodities rally of 2003! Keywords: Internet bubble, stock mania, overvaluation, stock market excess Markets. Business. Life. by LoneRngr (screen name) is licensed under a Creative Commons Attribution 2.5 Canada License. Based on a work at marketsbusinesslife.blogspot.com.Permissions beyond the scope of this license may be available at http://marketsbusinesslife.blogspot.com/.