Call Us : 604.568.1586
Email : info@friuch.com
Jul
Best Desciption of the Dot Com Era Ever
Posted by
Taken from an article entitled “The Great American Bubble Machine” from Rolling Stone magazine:
The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren’t much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.
Source: [LINK]
I lived through this kind of insanity in Vancouver and Ottawa during the late 1990s and this description made me laugh heartily. I have some friends and colleagues that are building solid web-based businesses but it bears remembering how far off the rails we can go when we suspend disbelief.
- Bookmark :
- Digg
- del.icio.us
- Stumbleupon
- Redit it
The great thing about this is that it proves the free markets work. Those vaporware companies were purged and only the real businesses (Amazon chief among them) survived and thrived!
It also showed us that fear and greed to, indeed, drive the equity markets. If a story is too good to be true (read David Baines’ story in yesterday’s Vancouver Sun at http://tinyurl.com/n4bxv4) then it probably is!
ABE Books did really well too.
I think the biggest scandal of the dot com era is how little people in positions of trust looked into these companies.
I’m not an investor and I know you’re a big advocate of “doing your homework” Mark (and I agree) but it’s not like every investor can get behind closed doors at every company that goes public. Someone is supposed to do the due dilligence.
The argument of the article that I linked to is that Goldman Sachs did the exact opposite of due dilligence. Knowing full well that these companies were vapourware, they marketed these stocks to unsophisticated investors in an attempt to rip them off.
That’s the problem. The free market works so long as everyone plays by the rules. Intentionally misleading people isn’t part of the deal.
Good points. Although I would reinforce that if one is spending $1 of their money on an investment it is incumbent upon that individual (and no one else) to do their own due diligence. Absolving themselves of responsibility by relying on others is just plain foolish. For those who don’t have the time, skills, inclination or interest there are lots of index funds that mimic entire markets (I have five of them in my portfiolio following the S&P 500, the TSX 50, the major world markets, Cdn bonds and US bonds).
I don’t disagree with what you’re saying. However, there are regulations against people making false claims in advertising. Shouldn’t there be a similar standard for IPOs?
I’m not suggesting that what these investment professionals are doing is ethical. I absolutely agree that there should be regulations (and, while not a securities maven, I do think that the BC Securities Commission exists for the purpose of prosecuting these regulations) and that less than desirables should be weeded out.
But these are real dollars we’re talking about and no one should hand over $1 of their hard earned money while acquiescing to the purchase of equities or bonds that they don’t understand from people that they don’t know.
All investors should know who their investing with (ie: don’t cut your cheque in the name of the investment professional personally, as has happened many, many times (ex: Ian Thow on Vancouver Island)) and investors should know what they’re buying (and recognize that outlandish claims are typically just that, no one can guarantee any return and penny stocks are nothing more than gambling).
Hey Aaron and Mark.
Hold on there. Joe Blow little investor wasn’t putting money into this vaporware. It was supposedly intelligent venture capitalists and investors.
And it’s not so much that they went in blindly, these were smart people.
But the nature of private investing is to go for the home runs. You have to perform and it’s hard to keep your job when everybody is demanding that you get in on the next big thing, despite your reservations.
I know many investors and they’re pretty hard nosed about this kind of stuff (having learned their lessons from the dot com bomb.)
As a business planner, the first thing I ask is “How are you going to make money on this?” if the answer isn’t in one sentence, then you better rethink the plan. — or run for cover.
You may lose out on a great thing, but more likely you’ll simply lose out on a loser.
Tony Wanless
PS: Hope things are well.