Northern California was ground zero for the dotcom melt-up in the late 1990s and the implosion in 2000.
Living in NorCal at the time, I was able to personally bear witness to it all – and there was probably no more entertaining spectacle…ever.
Wannabe stock traders were glued to CNBC at every coffee shop, car wash, and restaurant – to make sure everyone knew…they were very successful stock traders.
I would do loans for people making $35,000 per year who insisted on arrogantly explaining “liquidity events” and “exit strategies” to me, as if they were concepts a mere mortgage guy probably couldn’t understand. 😊
After the dotcom crash in 2000, there were so many Porsche Boxsters for sale in the Bay Area (by people whose liquidity events did not materialize) that the Wall Street Journal actually made fun of it in a feature story.
I personally knew a gentleman who was a millionaire CEO of a dotcom startup that never scaled, never made money, and never got a product to market. And – when his stock cratered and he lost everything, he spent two years looking for another CEO job until his wife made him get a real job.
And the unemployment lines in the Bay Area were very long in 2000 – not from layoffs, but from all the wannabe stock traders who “retired” all too soon on their 1999 gains but had to un-retire when all those gains disappeared.
BUT – my favorite story of all is about the nerdy tech guy in my neighborhood who was actually a billionaire … for a while.
He was one of the early employees or maybe a founder (I was never quite sure) of one of the most famous dotcom flameouts: Commerce One.
When the company’s market cap peaked at over $20 billion, he was a billionaire. It was very impressive and much talked about in our quaint little NorCal neighborhood.
But, sadly, his wife was not as impressed – and she divorced him right when his wealth was peaking.
She got a huge stock payout from him (about a $100 million, per the rumor mill) that she promptly liquidated.
She then bought a $10 million home in Malibu and diversified her holdings – and abandoned our quaint little NorCal enclave (this might be the saddest part of the story because she was super-hot, but I never noticed of course).
Her husband, confident in his skills and the ability of “the new economy” to continue to generate unlimited wealth (especially for anointed tech geniuses) hung on to all of his stock.
Because, why not? The stock was shooting up in value, and if he hung on, he would not just be a lowly billionaire, he might soon be a $10-billionaire! Think of the fame, power, wealth, notoriety and, best of all, the writeups in Forbes!
Anyway, the dotcom world imploded in the spring of 2000, and Commerce One lost almost all of its value. The company struggled for a few more years before filing for bankruptcy protection in 2004.
The nerdy tech guy was mostly broke and the super-hot ex-wife (who I never noticed) was living large in Malibu (and still is, as far as I know).
I share this story because I got so much feedback last week in response to this blog: When Will The Stock Market Crash?
Some readers asked me what they should do, and several others told me that their financial advisors thought I was stupid (I didn’t disagree). 😊
I have no idea if or when the stock market will crash or even correct – and I would never give financial advice (as a reminder, these blogs should never be considered financial advice).
But, people with substantial stock holdings might want to follow the lead of the super-hot ex-wife and take some profits while the profit-taking is good.
I recently listened to a podcast guest explain that selling a few stocks (not liquidating everything) and moving into T-bills or Treasuries is a great bet right now because you can earn around 5% guaranteed – and if stocks correct and rates fall, those T-bills will be worth even more.
Jim Rogers Rule: Sell When You Can Make Money; Not at the Top
The famous investor, Jim Rogers, always reminds investors to sell when they can make money but never try to time the top. And he laughingly tells about all the times he sold too soon, still making a lot of money, but also forcing him to watch his former assets continue to shoot up in value.
He’s filthy rich now though because he always sells before it is too late.
