Bubble… Boom… Burst?
January 08, 2014
The old saying is true: History has a way of repeating itself. Today’s economy shows several signs which could lead some to question whether there’s another technology bubble in our future. But that question leads to the next: If the bubble leads to a boom, when does it burst?
From my perspective, we have been slowly recovering from the significant recession that started in the mid-2000s, although others have determined that we have completed our recovery from the recession. We are still living in an economy that has high unemployment rates and, in my opinion, there is still great uncertainty as to when the economy will completely recover. In contrast, the stock market is currently the highest it’s been in years and there has been an increasingly larger number of companies becoming public registrants. According to PwC’s IPO Watch, there were a total of 160 initial public offerings during the first nine months of 2013, as compared to 108 IPOs for the first nine months of 2012, listed on the U.S. stock exchanges. Do these indicators seem familiar? If not, let’s summarize some history from the dot-com boom that ultimately burst in March 2000.
The NASDAQ peaked in March 2000, at just over 5,000 points, primarily due the new group of Internet-based companies that proliferated during the boom as well as other existing companies taking their businesses online. This created immediate perceived additional value within these companies; investors had positive speculation in the value of these stocks; and venture capitalists made funds available to support technological advancement.
Current day: In November, the NASDAQ exceeded 4,000 points for the first time since September 2000. The index has improved approximately 34% since November 2012 and 204% since November 2008. Likewise, investors are providing pre-revenue technology and social media companies like Twitter multibillion dollar investments. However, unlike the last technology bust, investors are investing wisely and paying attention to the specific technologies and opportunities available. Also the increased scrutiny executed by investors on a current technology’s facts and operating results will help mitigate the risk of an investment. Programs like the JOBS Act provide some companies with an opportunity to become public with less strict reporting requirements than our currently trading public companies. The views of technology connoisseurs are relatively optimistic, which is how they should be, but there is still uncertainty in the current economic conditions and the ever-so rapid changes in technology.
While it remains to be seen whether or not we are truly in a bubble, remember: History does tend to repeat itself; thus remain smart so if the burst comes again you’re in a good position.