Download Dot.con: How America Lost Its Mind and Money in the Internet Era djvu

I read "Dot.con" after reading an excerpt of it in Michael Lewis' "Panic". I was excited to get a comprehensive account of the internet stock speculative bubble and relate it to the current subprime housing mess. While I can't speak for some of the technical points that other reviewers have pointed out to be erroneous, it was interesting to read this account nearly 7 years after it was published.

John Cassidy points out numerous times throughout the book that the speculation of these internet stocks was perpetuated by Wall Street. Virtually every internet IPO was based on potential earnings and income growth. Therefore, no one had any idea on how to value the stocks because there were no earnings or even a consistent revenue stream to for that matter. However, Wall Street just started creating new valuation models based on number of web-page hits and current revenue and extrapolated out into the future assuming that web traffic would continue to increase exponentially, while costs would decrease due to these websites not incurring the typical costs that traditional firms were saddled with. While web traffic has continued to increase and more and more people are connected to the Internet than ever before, the costs of acquiring these customers, through significant price reductions and huge marketing budgets never waivered, bankrupting mostly all of these websites.

In addition to haphazardly marketing the IPOs for these websites, each investment bank on Wall Street and Silicon Valley were using their analysts to justify these IPO valuations. The research divisions within the investment banks were traditionally independent of the sales and brokerage division. During this era, the supposed "Chinese Wall" was torn down. What resulted was an environment where independent analysts were hyping the stocks the investment banks were marketing to their clients and ultimately, individual investors.

While Cassidy does place a significant amount of blame on Wall Street, he also implies that Alan Greenspan could have done much more by raising interest rates while the speculative bubble was forming. This would have slowed capital into the equity markets and potentially prevented the bubble from popping.

Looking at the parallels between the internet stock crash and the housing market crash is pretty remarkable. In each instance, individual investors are the ones who are suffering. During each IPO, the investment banks would sale the first offerings of their stocks to their preferred customers, typically institutional investors (mutual funds, pension funds, etc,). Through the marketing machine that hyped these investment vehicles, individual investors were eager to get their hands on these shares as they wanted to benefit from the coming technological age. Therefore, individual investors were not able to access shares until after the institutional investors sold theirs. For example, if Pets.com issued 5 million shares at $5 a piece, the institutional investors might get them at $5 a share, but as demand in the markets increased, they would then sale them at say, $10. Inevitably, once the markets realized the company had no real earnings potential, the stock would plummet and it would end up below the initial IPO. During that chain, the investment bank raked in their huge fees for the IPO, their best clients realized huge gains by being able to buy these stocks before the rest of the public and then, by the time the public had access to these stocks, they were overpriced but since everyone else was doing it, the public continued to snatch up any shares.

Compared to the housing mess, we had Wall Street peddling Residential Mortgage Backed Security (RMBS) bonds as safe investments. The demand for these investment vehicles increased, creating a situation where banks were focused on generating loans. Basic underwriting principles were ignored and housing prices continued to increase. Eventually the good times ended and when owners get in over their heads and foreclosures started increasing resulting in the crash of the housing market.

In both instances, critics have charged that Wall Street and the Federal Reserve, still chaired by Alan Greenspan, could have prevented this. As a free-market economist, I believe that, unfortunately, things like this can never be prevented and as we enter an age where globalization has intertwined the economies of nearly every nation, these panics an crashes will tend to be the norm. It was very ironic to read Cassidy's epilogue where the implication is that this might never happen again and it only took five years for the next speculative crash.

The author starts with a history of the web, the emergence of familiar companies like Yahoo! and Amazon.com. Then the narrative proceeds like a disaster movie where the masses ignore the warning signs and eventually are punished for their hubris. The prose is excellent and the author clearly has done his research, throwing in historical tidbits about stock market crashes (the South Sea Bubble, Tulipmania). An great book on a era symbolized by the Pets.com puppet.

Great book for those interested in the history of dot com bubble!

During the 1995-2000 period, investing was fun. Everyone was making money.

Like the Dutch tulip frenzy and the pre-1929 Era in the United States, greed overcame common sense. History repeated itself again during the internet craze. The detailed chronicle of the event in the text brought back too many bad memories, especially my investment losses.

good reading

Great

It meets my standard, plunges you in the 1990's era of internet boom, when IPO were done in a carefree manner.

While the story of dot com bubble is fascinating, this book is not. The book is a dry compliation of mostly known facts, scatterred throughout the book. No story, no analysis, no conclusions. To add to the offense, there are numerous typos and plain wrong "facts". I had hard time finishing the book, so boring it was. The book would be much better off, if created by some insider to the industry, like "Liar's Poker".

It is amazing why this book receives relatively good reviews. For me, it is just a realy poor job by the author and editing team. So poor, it must be embarassing.