Dot Com Mania –

By Bob Kerstein CEO

“I am not so much concerned with the return on capital as I am with the return of capital.”

Will Rogers, 1930’s.

They were the best of plans and the worst of plans.  During the late 1990’s and going into the new millennium, it seemed that the smartest and only way to make a high return on an investment was to catch a ride on the wild dot-com train.  Everything connected with the Internet was Hot.

Venture capitalists and bankers were investing in Internet start-ups based on excel spreadsheet projections and a dot com in the company’s name. Entrepreneurs enthusiastically set up web-based enterprises selling everything from infrastructure, services, domain names, advertising, toys, graphics, and just about anything else one could imagine.  Instead of a pick axe, gold pan and a Jackass like in the Gold Rush, the tools of the trade were computers, domain names, high-speed connections, software and investors who felt like a jackass afterwards.

The old businesses that were not adapting to the Internet were being punished in their stock prices.  They were referred to Brickbased businesses vs the New Internet businesses that were called Click based businesses.  The Click based stocks were skyrocketing while the Brick based stocks were flat to down.  Many estores sold products for less than they paid for them, betting that would attract new customers and build loyalty for the future. When the economics didn’t make sense in the core business model, everyone felt that advertising revenues would bail them out.


In little over a year at the top market for technology shares in 1999, the Nasdaq, gained 128%. The spectacular stock market gains of Internet firms with little revenue and no profits drove many experts to despair. One of the most successful investors, Julian Robertson, closed down his Tiger hedge fund, saying he could not understand the markets anymore.  The old rules didn’t seem to apply.  Companies were being valued on future projected cash flows at extremely high multiples (50 to 200 times), vs the old fashion method based upon actual cash flow of 7 to 15 times. In 1999, there were 546 IPO’s raising over $69 Billion. The average first-day gains of IPO’s in 1999 were 68 percent compared to the prior year of 23 percentSuccess was not measured in return on capital or return of capital, but rather in raising capital from investors.
Unfortunately, in 2000 the Internet bubble burst. Stock prices plunged, investors lost confidence, and web based businesses started closing down by the minute. Many paper millionaires lost everything including their jobs.  Click based employees went back to their old Brick based jobs with wild stories of wasted money, lavish parties and ridiculous business plans.  Who would have thunk history could have repeated itself?
The bursting of the dot-com bubble resembled other episodes of unreasonable speculation in financial history. The common factor seems to be normal business minded people get carried away with a good idea and the fear they will miss out if they don’t invest.

One of the more infamous of the speculative bubbles in history was the Dutch tulip craze in the seventeenth century. Tulips were beautiful and scarce, and a symbol of class and status. Demand skyrocketed and so did the price. Tulip options were traded on the Dutch stock market and no one wanted to miss this once in a lifetime opportunity.

At the peak of the market in 1635, one tulip bulb was worth the equivalent of $35,000 in today’s dollars. Buyers were selling their life savings just to own a one  tulip bulb.  They though it was a safe investment that would continue to go up in value.

The bubble burst in 1636 when investors started selling, and prices tumbled. Many investors lost confidence in the market and there was panic selling. Prices continued to crash down to less than a dollar in today’s money. Many people were ruined and the Dutch economy went into a recession for many years that followed.

Another famous episode was the South Sea Bubble in England. In 1711, the British government granted the South Sea Company a monopoly on trade in the Americas, and this proved irresistible to investors, who seemed not to notice that the Americas were controlled by Spain. The price of shares rose rapidly but the company never made a profit. The crash started around 1720.

Other examples include the Railroads in the 1870’s, Florida real estate craze in the 1920s, and the U.S. stock market crashes of 1929 and 1987…. now we can add the Dot Com Bubble.

This is a modern day Scripophily Collector’s dream.  You have to take notice when the paper a company’s stock is printed on is worth more than the company’s stock trading price.

In fact, many Dot Com’s were worth more dead than alive…


Here are some examples of dot coms that added air to the Internet bubble:

 amazonstock  amazonvig
Stock Certificate Vignette
The largest bookseller on the net. In December 1999, the company’s stock was over $100 and in September 2001 it was around $5.50.

 coolsavingsstock  coolsavingsvig
Stock Certificate Vignette
This company’s logo says it all for the mentality of the Dot Com Era.  As of December 12, 2001, the company’s stock was trading at 5 Cents per Share from a high of $6 per Share in January 2001.



Stock Certificate
No Free Lunch – Jul. 10, 2001 Webvan Group Inc., the online pioneer that aimed to revolutionize the grocery industry but ended up losing $830 million, ceased operations Monday and said it would file for Chapter 11 bankruptcy protection.



Wired Magazine

Stock Certificate
This certificate was never used in the public offering because the company was unable to get the IPO funded and pulled the offering in late in 1996. Due to the the company’s continued losses. they were fored to sell out and did so in 1998 to Lycos.

 broadband  broadbandvig
Stock Certificate Vignette
Airplane company was to carry a communications payload over metropolitan areas.  Once the prototype was built by Burt Rutan (Voyager Designer) tests were successful, but the business couldn’t get funded and never got off the ground.

 eggheadcert  eggheadvig
Stock Certificate Vignette was a leading Internet direct marketer of technology and related products. With an emphasis on Small- to Medium-sized Business (SMB) customers that declared bankruptcy on August 15, 2001 and was cooked sunny side down.



Stock Certificate
Once a Wall Street favorite with a market capitalization approaching $10 billion, the Santa Monica, California based eToys has filed for protection from its creditors in U.S. Bankruptcy Court in Delaware and closed its virtual doors in 2001.



XO Communications

 xocert  xoxovig
Stock Certificate Vignette
The company’s stock was around $65 in March 2000 and now is hovering around $0.07. XO Communications, a Craig McCaw Company,  has been involved in many lawsuits recently and now Carl Icahn is fighting for control.  the company was building wireless Broadband Infrastructure for demand that was only on  Excel spreadsheets but not with paying customers.


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