DigitalAnalogues

The Future = Now x Acceleration

How to Turn $250,000 into $25,000

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How much value did the dot-com crash in 2001 obliterate from the market? A lot.

In graduate school we were given an assignment in Economic Reporting class to take $1 million, divide it up among the members of our group and invest it in the stock market, following the value of our portfolio every day for a month to track how the variations in the market affected its value.

It was spring of 2001 and technology and tech stocks were still the rage. Little did we know that the dot-com bubble had burst and thousands of dot-coms would disappear. Angel investing would dry up and Silicon Valley would “get real. Unfortunately for us, that trend took hold two weeks after we invested our (thankfully) imaginary $1 million.

Since there were four in my group, I was responsible for investing $250,000. I put my capitalization into a handful of what I thought were sure-fire winners. Behold below, a snapshot of my portfolio from this week:

Imaginary portfolio of tech stocks.

Imaginary portfolio of tech stocks tracked on myYahoo.

This is why I am in higher education as a career. A is Agilent, a company founded by HP that makes biomedical devices. AMD is the CPU / GPU and chip maker that rivals Intel. CSCO is Cisco, the wired and wireless networking company. GLW is Corning, manufacturer of fiber-optic cable. IBM is Big Blue. RHT is Redhat, corporate Linux distributor and support company.

Brilliant, right? Wait. What are those red ticker symbols?

Those are companies that didn’t make it. COMS was 3Com – makers of computer modems and networking cards. Once computers incorporated them into their motherboards, there was no need for extra cards. KRI is Knight Ridder Corp. was the parent company of 32 tech-savvy metro newspapers including the San Jose Mercury-News. It’s now owned by McClatchy Newspapers. And PALM is the company that produced Palm Pilots. If you were one of the cool kids, you owned a Palm if you had a personal digital assistant (PDA). Palms were all the rage before Apple introduced the iPhone / iPod Touch / iPad, et. al.

The price listed above is per share. That translates into my market capitalization seen below.

This is what my portfolio is not worth. Not quite what I was hoping after 14 years.

This is what my portfolio is now worth. Not quite what I was hoping after 14 years.

This is an improvement. About 10 years ago, I checked and the value was well below $10,000. That’s when it bottomed out. The crash fell so far and so hard that the markets have been leery of tech stocks ever since. Even 12 years later, the Facebook IPO was a huge disappointment. Much of that is attributable to Mark Zuckerberg overvaluing the company to start with, but I digress.

A financial calculation called “The Rule of 72” states that given an average return of a certain percentage, that I should expect the value of my portfolio to double in a certain number of years. Given that “rule” my portfolio should have been worth $500,000 by 2008 and probably $750,000 by now – all other things being equal – given that the average rate of return in the stock market is about 10 percent over time.

So the Rule of 72 works, since I’ve more than doubled my bottoming-out valuation. But knowing what I started with illustrates just how much value was sucked out of the investment economy by the dot-com crash of 2000 – 2002.

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Written by digitalanalogues

February 26, 2014 at 8:52 PM

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