Wednesday, September 9, 2009

The Dot.con Era

It may seem pretty strange that so many years after the fact, I'm sifting through the wreckage of the dot-com era for lessons. It's largely because of the Michael Lewis-edited volume, Panic. The writings in this volume are so so prescient and smart. Two pieces that I've recently read are an excerpt from Dot.con: The Greatest Story Ever Sold by John Cassidy and "Meet the Dumbest Dot-Com in the World" by Mark Gimein. Even though these pieces were written back in the early part of the decade, they hold timeless wisdom about evaluating business models and much-needed perspective. Don't assume that we've learned everything that we could from this era. In fact, I assume we haven't. If we had, then we wouldn't be in the current mess.

The Dot Con excerpt recounts the early months of the bursting of the Internet bubble: March and April 2000. Reading books or magazine stories from this era is like walking through a cemetery or looking at a class photo from elementary school.
You either are feeling saddened and/or validated by a demise or just simply wondering what the hell happened to that kid from the back row.

It's amazing and almost laughable that companies like eToys, and were considered viable businesses. Some of these companies did survive, mainly by being bought by stronger companies. For instance, got folded into It's not just the companies that seem like apparitions from the past. Do you remember Albert Vilar? He has a great quote in the book regarding a negative piece in which a Barron's writer claims that many of the top Internet names are running out of cash. He says, "I didn't set my performance record, which is about the best in the business, with any help from Barron's." I shall refrain from making a joke about this.

The real lesson I got from this piece is that it's very hard to call a crash, even when it's happening. Of course people were starting to throw in the towel, most people weren't. Many people thought that the market was going to bounce back and that this was simply a correction. This may seem like naivete, but it's exactly the sort of complacency and overconfidence that sets in when stock prices have climbed for so long. Besides if you remember correctly, in October 1998, the market experienced a correction and then bounced back to continue its ascent. Why on earth wouldn't people believe that the same thing was happening?

In tomorrow's post, I'll discuss the lessons learned from Mark Gimein's story on downfall of AllAdvantage.

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