Lessons from the Dot-Com Bubble
Innovation can be real while valuations are still wrong.
The late-1990s internet boom proved two things at once: the internet was transformative, and paying any price for a good story can still destroy returns. Great narratives do not automatically become great investments at inflated prices.
The Core Pattern
How bubbles form
- A real breakthrough creates a new narrative.
- Capital floods in; growth metrics replace cash-flow discipline.
- Valuations price in near-perfect execution.
- Reality arrives: competition, costs, and time-to-profit are bigger than expected.
Two Misconceptions to Avoid
A Modern Checklist
Before buying a narrative stock
- What must be true for the valuation to be justified?
- What is the competitive path if the idea is obviously good?
- How long to sustainable profitability, and how much dilution/capital is needed?
- If growth slows, what is the downside multiple?
Key Takeaways
Distinguish adoption from profitability.
Great narratives can justify progress, not unlimited prices.
Ask what the valuation already assumes — that is where risk hides.
Lessons from the Dot-Com Bubble
Innovation can be real while valuations are still wrong.
The late-1990s internet boom proved two things at once: the internet was transformative, and paying any price for a good story can still destroy returns. Great narratives do not automatically become great investments at inflated prices.
Table of Contents
The Core Pattern
How bubbles form
- A real breakthrough creates a new narrative.
- Capital floods in; growth metrics replace cash-flow discipline.
- Valuations price in near-perfect execution.
- Reality arrives: competition, costs, and time-to-profit are bigger than expected.
Two Misconceptions to Avoid
A Modern Checklist
Before buying a narrative stock
- What must be true for the valuation to be justified?
- What is the competitive path if the idea is obviously good?
- How long to sustainable profitability, and how much dilution/capital is needed?
- If growth slows, what is the downside multiple?
Key Takeaways
Distinguish adoption from profitability.
Great narratives can justify progress, not unlimited prices.
Ask what the valuation already assumes — that is where risk hides.
Related Terms
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