Sunday, July 24, 2005

Euphoria e-Phoria: Book of the Month

I spent most of the Bubble in a bubble.

I was in college pursuing a liberal arts degree, tucked away in the library, combing through everything except the Wall Street Journal.

In other words, I didn't comprehend the magnitude of what happened from 1995 (Netscape IPOs and turns into a $7 billion dollar company overnight after releasing the keys to the Internet, the Navigator) to 2000 (market tanks, obliterating $2 trillion in wealth after hundreds of internet companies fail to parlay their seed money into operating cash flow) until after the fact.

John Cassidy's "Dot.con" makes a fascinating introduction to the "irrational exhuberance" of the 1990s era.

Just in case you forgot, that was the time when any business remotely related to the internet could go public for millions dollars with steady losses, a medicore business plan, and unseasoned management.

All of America, overtaken by greed, irrationality, and herd mentality, rode the euphoria over technology stocks until its crash in early 2000.

Group think -- the stock market's sin qua non -- was especially pervasive. Group think is

reasoning or decision-making by a group, especially when characterized by uncritical acceptance or conformity to prevailing points of view. The term was coined in 1972 to describe a process by which a group can make bad or irrational decisions. In a groupthink situation, each member of the group attempts to conform his or her opinions to what they believe to be the consensus of the group.
Group think, as you can probably infer, was responsible for Enron's bankruptcy.

In Dot.con, Cassidy tracks the bubble from its beginnings to its demise, detailing successes like Amazon's and failures like WebVan's (One became the e-tailer king; the other raised over $160 million in startup capital only to burn through it all and declare bankruptcy in 2000).

Cassidy concludes his book with a sobering analysis of the psychoeconomical repercussions of 9/11.

Saying something like "paradigm shift" wouldn't even begin to describe what the Boom represented.

In short, from 1995 to 2000, the previously unimaginable became the norm.

Most prominently, gung-ho startups allured by the Internet's minimal barrier to entry and "network effect dynamics" were overfunded and analysts were free to recommend the stocks of companies their investment banking colleagues were simultaneously serenading to drum up deal flow.

Chinese Wall you say?


No wonder Cassidy calls the era a vast Shakespearean farce.

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