Last night I watched a really powerful film, Charles Ferguson’s “Inside Job” about the biggest heist in history and it got me thinking about my own financial downfall when my bubble burst during the dot com crash in 2000. This huge "dot bomb" crash, as it was known, was estimated to have cost investors, like myself, 3 trillion dollars.
In financial markets a stock market bubble is a self-perpetuating rise or boom in share prices of stock in a particular industry or sector. In 1998 I had a very successful financial headhunting firm in the City of London, built from scratch with hard work and ambition by my side. Life was amazing in the fast lane, having fun, working hard and guzzling champagne. I often had big City lunches with pinstriped bankers who would talk of their anticipation of further rises and fast increase in value of up and coming new internet and telecoms firms. I had always believed with the little knowledge I had, the trick to playing the stock market game was all about acquiring stocks when they were under valued and although this was my instinct, I was blinded by greed and my gambling mentality. If these bankers were giving me information, they had to be right, didn’t they? After all they are the experts with all the knowledge at their finger tips. Foolishly and naively I listened and acted on hearsay purchasing hefty blocks of telecoms and internet stocks at what appeared to be very affordable prices.
Now it was just a question of waiting, watching and becoming obsessed with my rapidly growing stock portfolio, climbing its way to the top, increasing in value almost daily. I did do some research into the background of the companies stocks I held and often I would air my concerns to my broker about the worries I had. It seemed to me impossible for a young company start up with no history, to be worth such a massive valuation but I was told it was all about the future and huge potential profits down the road.
At the height of the boom, it was possible for these promising, futuristic, internet start ups to offer its stock to the public, something known as an IPO, in order to raise huge amounts of money, even though the companies had not made a single penny. This to me seemed crazy and too good to be true but by now I was on the roller coaster enjoying the ride. I was in it to win it.
My initial stake for stocks in three start up firms in 1998 cost me around £90,000 in total. I placed large bets at very low prices, between 1p and 50p a share and greedily waited to see what would happen. It was like living in a casino or the bookies, daily checking the prices as my stocks soared and my portfolio burst at the seams. It was like the more people talked about these stocks, the higher the price would go. I told many friends and family members about my high flying Gordon Gekko investment strategy, based on fool proof advice from my bankers and brokers, who all had a dabble themselves. Everyone was having a flutter, riding high and looking forward to making loads of easy money from investing in young entrepreneurs, in the fast growing age of technology.
By 1999 I had given up my business in the City and moved to LA to get married and live the dream with my bulging stock portfolio, on the basis I was rich and invincible. During 1999 and 2000 the Federal Reserve increased interest rates 6 times and as the economy began to lose ground, I still greedily listened to the advice of my bank and my broker, who just kept telling me to buy more, not sell.
In January 2000 my virtual portfolio was worth a staggering $11 million dollars on paper and I could not believe my luck. It seemed to me it was impossible to lose at this game, so I never really thought about selling and I never questioned my greedy behaviour, not once.
By March 2000 the bubble had burst and my stocks began to rapidly lose ground, dropping like flies. I watched CNN daily with my mobile on redial to my bank, as brokers, bankers and individual investors panicked, dumping large chucks of stock into the abyss. I was told by my bank when my portfolio had halved in value, not to worry, it was a great opportunity to buy more when the price was low enough. This panic selling mentality was just a blip. So like a greedy idiot I listened and acted by purchasing more stock, when everyone else seemed to be cashing in, something I will never understand about myself now from a centred place. By 2001 the bubble was deflating at full speed and most of the dot com firms had ceased trading, after going through their venture capital, having never even made a single penny net profit.
I foolishly and naively stayed the course and ended up losing everything I had made on paper, including my initial stake of £90,000, which was painful but deserved in reality. Greed had got the better of me and with all the bad advice I had been given, I had no one to blame but myself. As of September 24th 2002, the Dow Jones Industrial average had lost 27% of the value it held on January 1st 2001, a total loss of 5 trillion dollars. The NASDAQ subsequently lost nearly 80% and the S&P lost 50%, reaching October 2002 lows.
The total market value of the NYSE and the NASDAQ (1.8) companies at the time was only $9 trillion, for an overall market loss of $9.3 trillion. Since losing all that virtual money in the giant global banking casino, I have been on a long journey to enlightenment, taking a long hard look along the way at my behaviour, my addictions, my greed, my morals and I can say with all honesty, unless something changes very quickly within our Global Financial Markets, we are all doomed.
A crash of similar magnitude happened in 2008 with the collapse of the US Housing market which led to the global banking crisis and then again in 2020 when Corona Virus hit and we saw unpredented trading suspension as markets plumetted to levels we haven't experienced since the great depression.
Photo by: Patrick Weissenberger Unsplash