Thursday, 16 September 2010

Internet Bubbles: easy steps to loose money

The Internet Bubble
The Internet has revolutionised the world, business included. From around 1995 to the early 2000s there was a sort of strange aura around internet companies leading to 'stock bubbles', companies were pumped up to be huge with nothing but a web address then collapsed with no capital to reply their creditors.

This is simply how it works:
-Internet company is founded with an idea
-Someone finds out about this and is also convinced it is a good idea
-Internet firms of the past have jumped up stock market… so people assume this will
-people buy stock
-people recommend buying the stock
-more people hear about it and see the stock price rising (increased demand) so they buy (further increasing demand)...
-Shares soar!
-Baffled owners of the company release more stock to make a profit for them selves
-Demand for stock is still insainly high and people continue buying forcing the price up (even though supply is increasing)
-Owers of the company rease more and more stock
-The company is not actually that good.. (E.g: Netscape, fanstiastic but then wiped out by Microsoft.)
-Stock plumits down
-Company is struggling but has no stock left to release
-Company goes bankrupt.

Just demonstrates the stumbling block of economics... sometimes people aren't that rational.

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