People were overly optimistic about Tech companies
People were overly optimistic about the future of Tech companies that they sent their prices very high without much rational reasoning,
Many Tech companies started reporting losses
Many of the companies people had high hopes for started reporting losses. This led to massive selling. (See How to identify a stock market bottom?)
Prices of Tech companies were inflated
According to Investopedia In the year 1999, there were 457 IPOs, most of which were internet and technology related. Of those 457 IPOs, 117 doubled in price on the first day of trading.
Investors went after big ideas not business plans
Investors rushed into stocks that promised big changes to the industry without taking a look at their business plans. This made most of the tech stocks overvalued.
Profitable companies were overvalued
During the Tech bubble there were some profitable companies that had real business plans but most of them were overvalued due to the craze that was taking place.
The use of metrics that aren’t related to cash flow
Many investors started looking for certain metrics ,that had nothing to do with cash flow, to measure a business performance. (See How To Spot Unmet Market Needs?)
Bad accounting practices
Many companies started cooking the books and reporting incorrect numbers in in their financial statements. This made investors pour more money in those companies.
Many new investors jumped in
Because internet trading was relatively new. Many new and inexperienced investors jumped in the market. This led to much higher valuations for companies.
Many companies preferred growth over profits
Many Tech companies cared about growing instead of making profits. Those practices led those companies to bad financial situations.
Internet businesses were a relatively new idea
Because internet businesses were a relatively new idea investors couldn’t really find a fair value for them. This led to speculation about the future of those businesses.
Why the 2000 dot com crash happened?
What are the Lessons Learned From the Dot-Com Crash? A look at the 2000 dot-com bubble and how it shapes our lives.