It's interesting to me that people bring up 'The Dot Com Bubble' as an example of empty hype, when in fact, investing in the Internet even at the peak (deploying capital proportional to 1999 market caps) has one of the best IRR's in the history of time (Amazon, eBay/PayPal, eTrade, etc.).
I don't think hype will die down so much as winners will be chosen and the long tail will stop buying GPUs (in the same way Pets.com and Webvan stopped building warehouses).
">It's interesting to me that people bring up 'The Dot Com Bubble' as an example of empty hype, when in fact, investing in the Internet even at the peak (deploying capital proportional to 1999 market caps) has one of the best IRR's in the history of time (Amazon, eBay/PayPal, eTrade, etc.)."
Do you have a source for this claim? Like, you or someone else has a market cap dataset of 1999 web companies and their market cap, including such 1999 darlings as stanlee.net, pets.com, etc. And you or someone else calculated the perormance of a .com portfolio circa 1999 if held for some time period past 1999?
That sounds like a dubious claim, especially because there isn't a clear line between a .com company and a non .com company. I recall related tech companies were also part of the .com hype cycle.
Let's put it this way - at the end of 1999, the top 10 companies were Yahoo! ($110bn)| Amazon ($27bn) | Yahoo! Japan ($25bn) | eBay ($17bn) | Infosapce/Blucora ($10bn) | Lycos ($8bn) | Priceline ($7bn) | eTrade ($7bn) | Monster.com ($6bn) | CNET ($4bn)
Pets.com made a lot of noise in the media, but peaked at a $400mn valuation.
Yahoo! exited in 2015 for $5bn plus about $40bn of Alibaba stock (bad but not awful)
Amazon is the real driver as it went from $27bn to $1,500bn today, a 56x return and a 20% IRR (it's nice when your #2 position does that).
Yahoo! Japan went from $25bn to $32bn.
eBay was $17bn, combined eBay and PYPL are $100bn.
Priceline was $7bn and is now $113bn.
eTrade was bought by Morgan Stanley for $13bn in 2020.
Lycos was acquired by a Spanish telecom in 2000 for $13bn.
The rest of the Top 10 were basically zeroes, but going down the list you also get Expedia ($1bn to $15bn).
And keep in mind this is buying at basically the peak.
The key is you actually had to listen to the wisdom of the market and not try to play in the penny stocks, which still largely holds true today.
Okay, but if Nvidia is an "AI" company, then Cisco (352 bn) , Lucent (252 bn), Intel (271 bn), and Microsoft (583bn) and maybe even Nokia (197bn) were arguably 1999 "web" companies. An investment in hardware companies making telecommunications equipment was also considered an investment in the internet, as I remember it. But maybe your dataset includes that as well.
No, Coca-Cola also reached a peak in 1998 that it didn't surpass until 2014, and calling that the "Internet Bubble" is definitely wrong.
I'm just saying that the 'Dotcom Bubble' is wildly misremembered. It was a broad market bubble with media coverage of the Internet.
EDIT: To add to the point. The companies you cite are 'picks and shovels' companies (don't even get me started there - what's the biggest pick and shovel company? the phrase should be 'jeans, coffee and banks'). There was certainly a 'picks and shovels' bubble that Nvidia may very well repeat, but the Internet was/has always been a good investment.
Actual living, non hypothetical investors were not buying the 382 publicly traded "web" companies at market cap rates in 1999 then patiently waiting 20+ years. (I doubt retail investors could have even executed this strategy.) If your investment strategy can't even be executed by retail investors I wouldn't call it a "good" investment.
I agree many didn't but in what way was there any impediment for people to do this? We both know eTrade existed back then...
It's like saying "who would buy Apple in 2005 and hold to today?"
The answer is "only a handful of now billionaires," but that doesn't mean it's an invalid strategy (again, it's one of the greatest strategies in the history of time).
If you're making the separate point that investing in Coca-Cola, Corning, or Intel in 2000 was a bad idea that many people did do, then I agree with you, but again that was a broad market bubble that sent people looking for explanations.
"Why?
I agree many didn't but in what way was there any impediment for people to do this? We both know eTrade existed back then..."
It's 1999 and I have 10,000 dollars to invest. How the heck do I invest it among 382 internet companies at market cap rate on etrade? Etrade isn't going to let me buy fractional shares of stock in 1999 in proportion to the market cap. Good luck dividing your investment so you own 382 companies in proportion to the market cap.
And have you considered Etrade was probably charging 6 dollars per trade? $2,292 dollars in expenses to own 382 companies means I've lost before I began.
"(again, it's one of the greatest strategies in the history of time)"
It's not really a strategy so much as a data mining exercise. It doesn't even seem to have resulted in a lesson you can apply today, you earlier said you don't even know if Nvidia is a good buy.
> Etrade isn't going to let me buy fractional shares of stock in 1999 in proportion to the market cap.
I think you should go check the absolute $ cost of those stocks in 1999. The fractional share thing is an outcrop of just how well all these companies did in the period we are discussing
>And have you considered Etrade was probably charging 6 dollars per trade? $2,292 dollars in expenses to own 382 companies means I've lost before I began.
Again, of that $10k, $1k of it was Amazon and that's now worth $56k. Let's instead assume that you in practice bought $994 of Amazon. That is now $55,650. Literally start in a $9,006 hole - only buy Amazon with a fee and literally burn the rest of the cash - you're still at an 8% market-beating IRR.
I don't know why you are choosing to die on this hill of focusing on how much it would cost to accumulate the long tail, when it's the primarily the big ones that make the money anyway.
>It's not really a strategy so much as a data mining exercise.
In 2023 it's a data mining exercise. In 1999, it was a strategy. That's how time works.
>It doesn't even seem to have resulted in a lesson you can apply today, you earlier said you don't even know if Nvidia is a good buy.
I'm telling you the lesson - don't invest in weird penny stocks or picks and shovels, invest in innovative companies that are driving use-cases forward. If you are having trouble finding those companies through proprietary research, the market is actually already pretty good at selecting them for you (though you still want to index to an extent).
You don't have to take that advice but you should (because, again, keep in mind we are talking about buying at the peak, nearly any other entry point 2-3x'es these IRRs).
My post was in response to when you wrote "investing in the Internet even at the peak (deploying capital proportional to 1999 market caps) has one of the best IRR's in the history of time (Amazon, eBay/PayPal, eTrade, etc.)."
That at least is sort of a strategy in that it's not a collection of folksy wisdom, assuming you had a methodology in determining what is and is not an Internet stock, which you maybe wouldn't have had, as this may only have been obvious in hindsight. But the problem with this strategy is investing at market cap is a non trivial exercise as I pointed out.
(Edit to add: Barnes and Nobles launched a ecommerce site in 1997. So I hope it's on your "deploying capital proportional to 1999 market caps" Internet firm dataset. /)
But now we seem to have moved the goalposts to "invest in innovative companies that are driving use-cases forward that are not shovel stocks or penny stocks" which is folksy advice kind of like "pick good companies and avoid bad companies."
In that spirit I offer my own advise: "Be better at predicting the future than the person you are buying or selling from." It works every time.
It's interesting to me that people bring up 'The Dot Com Bubble' as an example of empty hype, when in fact, investing in the Internet even at the peak (deploying capital proportional to 1999 market caps) has one of the best IRR's in the history of time (Amazon, eBay/PayPal, eTrade, etc.).
I don't think hype will die down so much as winners will be chosen and the long tail will stop buying GPUs (in the same way Pets.com and Webvan stopped building warehouses).