Chapter 5 [2000 Internet Bubble and Subprime Mortgage Crisis]

Source: https://www.facebook.com/794648900700097/posts/2140452122786428/

[The Origin and Today of James] Chapter 5 - The Internet Bubble and Subprime Mortgage Crisis in 2000 (02/11/2022)

How crazy the market was back then!

Before 2000, everyone was crazy about buying high-tech stocks, but I still held most of Starbucks. One morning I arrived at the company and found that all the engineers in the company had already arrived. I asked them why they arrived at the company so early today. They said they were going to grab an IPO. At that time, I was confused. What companies could I grab? So this is the Two Thousand Years Bubble. At the beginning of the bubble, when a group of people were rushing to buy IPOs, a group of engineers who had never invested turned out to be so keen on investing in IPOs. They also talked about technical lines, cup-and-handle bottom patterns, V-shaped reversals, island reversals, head-and-shoulders tops, head-shoulders bottoms, and other technical patterns. This really made me feel incredible. Looking back now, this may be a suspicious sign of the coming of a bubble.

Next, one day I heard a group of noisy voices as soon as I got out of the car in the parking lot of a restaurant. When I listened carefully, I saw a group of people gathered in the parking lot and loudly discussing stocks. This shocked me very much. There were so many people talking about the stock market in public. Everyone became a stock god. This may be another sign of a bubble. Entering the restaurant, while eating, all the people at the next table were talking about stocks, as if everyone was a stock god. This is another typical sign of a market bubble.

Different types of mergers and acquisitions reveal the position and development of the market!

The AT&T merger was a key thing that shocked and enlightened me [The Nature of Capitalism and War]. At that time, the Internet bubble was very serious. In addition to companies with no performance at all, they could still be listed. In addition, the stocks of large companies were very expensive at that time. Large companies used high-priced stocks that were relatively more expensive than cash funds to acquire companies, which is the so-called all-stock mergers and acquisitions. Here you can learn that when the market just starts to rise, stocks are cheap, and the company's value exceeds the stock price by a lot, the company will not use cheap stocks for mergers and acquisitions, but will use cheap funds (low interest rates, cash is worthless) for all-cash mergers and acquisitions. Therefore, during the period of all-cash mergers and acquisitions, it usually means that the stock price is cheap. When the market reaches mid-level, M&A is usually half cash and half stock. When the stock price is too high and exceeds the company's value, the company will use expensive high-priced stocks to acquire all shares instead of cash. This is just one piece of information that can be referenced when measuring the market stage.

Let’s go back to AT&T’s M&A. At that time, AT&T acquired an extremely small company. I remember that the company only had a dozen employees at the time. AT&T actually used an all-stock M&A with a value of nearly 5 billion U.S. dollars. When I converted, it was even higher than the market value of Acer’s entire company at the time. A company with a dozen people was more valuable than our large company with more than 10,000 people. This made me feel for the first time the asymmetry and unfairness of financial assets and funds. They are the aircraft carriers of capitalism, and we are small sampans, relying on others.

At the end of the 2000 bubble, I was deeply impressed. Yahoo had a sports car in front of the company. Engineers who switched jobs at Yahoo could get a sports car as a reward. Regardless of whether you knew how to program or not, you could come to work if you wanted to, and the company could teach you how to program. When I was there, it cost nearly hundreds of thousands of dollars in commissions and placement fees to hire an employee, and it was difficult to find outstanding talents. At that time, Yahoo's stock price reached 700 to 800 yuan, and it could rise by dozens of yuan every day. It seemed that if you buy it today, you will make a lot of money tomorrow. It's really a crazy time.

The last straw of the 2000 bubble!

In early 2000, I went to Dallas, Texas on a business trip to work with Dell People were having a meeting, and while having breakfast early in the morning, I watched the news. The news reported that the financial report of a large company was not as good as expected. At that time, I felt a little wrong. Is there something wrong with the market? Why did all the large companies I invested in for more than ten years have such good financial reports, but on that day in the year 2000, a large company unexpectedly released a financial report that was not as good as expected. I immediately went back to the hotel room and sold most of my high-tech stocks (including Cisco), but I continued to hold most of Starbucks stock at that time (Starbucks stock did not fall due to the dot-com bubble and continued to grow). This is my experience of escaping the bubble of two thousand years. I can only use luck to explain that I escaped the bubble of two thousand years. This has nothing to do with technology or market analysis. It is completely lucky. (Who knew that I would sell stocks because the financial situation of a large company was not as good as expected, and escape the two-thousand-year bubble. Thinking about it now, this is not a good basis at all, so I say that escaping from bubbles has absolutely no ability to predict the market except luck).