There is a rumor that Apple will soon announce a stock split. For some reason this still gets novice investors excited as if something good is about to happen to the companies balance sheet and/or stock price. Clearly, a stock split has zero material impact on a company's financial status and means nothing... but it is still deemed to be magical to the average retail investor. This reminded me of my time answering calls while working at Charles Schwab in 1999. This role allowed me to witness the eye of the perfect storm that was the 1999/2000 tech bubble.
Why was it the perfect storm? The stock market had been on a 17 year grand bull run depending on when you measure the starting and ending points. From 1982 to 2000, the charts of the DOW displayed a steady trend from the bottom left of the screen to the top right. This clearly affected investor confidence in the stock market. Maybe confidence isn't the correct word. I should probably replace it with arrogance. The stock market became a can't lose investment and everyone wanted to be a part of it. The top stocks of the 90's included Dell Computer, Microsoft, Intel, and Charles Schwab. The majority of the stocks that were over performing were tied to the personal computer revolution. But how was Schwab tied to this revolution? They were technically a finance company.
In 1998, Charles Schwab went live with Schwab.com. This allowed the average Joe to begin placing their own trades online from the comfort of their home or office. It opened a whole can of worms that our society was not prepared to handle.
We have the stock market in a long bull cycle, the tech revolution is charging ahead in full force, the Fed was lowering rates to prepare for Y2k and ignoring the massive growth statistics the economy was producing and now the every day Joe was armed with the ability to start trading their own accounts. Not to mention, they all had equity in their homes, 401(k)'s were starting to really mushroom and all the ingredients were there for a massive rise in the stock market.
I remember getting calls from people that knew nothing about balance sheets, cash flow, EBITDA, or what the company even did. Seriously! A typical phone call would be a lady calling with a dog barking in the background and CNBC blaring in the background giving me her account number and verification information so fast that I could barely type the data into the computer fast enough. She would proceed to yell "I want to buy 1000 shares of VXYZ stock at market!" I would retort "Ma'am, VXYZ isn't a valid ticker symbol. Do you know the name of the company you want to purchase so I can find the ticker symbol?" She would respond...."No... I don't know the name of the company but I just saw the ticker go across the screen on CNBC." I then chuckled and said "You want to purchase the shares of a company that you don't even know the name of?"
This was the eye of the perfect storm. I didn't know it at the time... but I was right in the middle of the most historical era of the stock market of all time. It may never be matched. Yes... there will be booms and busts as there always are in history.... but this was the perfect storm. Everything was sailing along on all cylinders and everyone wanted to be a part of this.
As the market charged upward and onward in February of 2000, the Schwab system was completely overwhelmed. The mainframes from IBM to handle the Internet traffic from Schwab.com could not be built fast enough to support the amount of people using the website. So when I would get to work in the morning... the first thing I would check is if the site had gone down yet. And when it did go down... it was complete chaos. The calls on hold would go from 17 to well over 300. Viewing customer accounts became impossible. I could no longer verify account balances, account numbers, or even if I was talking to the correct client. All trade orders would be placed on a paper ticket and held on my desk until the system came back up.
I once had a doctor call in to place 9 separate orders to buy and sell different tech stocks. I took the orders on the paper ticket and told the doctor "When the system comes back up you won't see these orders on you account. Do not duplicate them!" I then call the trading desk to place the orders manually because the dollar amount was too large to hold onto. A few minutes later the system comes back up and I check the doctor's account. Sure enough, he had duplicated the orders. I call him up to tell him to do nothing while I try to fix it. After working with the trading desk we realize that all of his stocks had moved in the opposite direction by $30 to $50 per share. The trader I was talking to asked me if the doctor knew this was an $800,000 oops? I nearly threw up and it wasn't even my money. I hope he wasn't in the middle of surgery!
The market was so volatile and everyone and their brother was all in. It was the biggest money grab of all time. Everyone looked smart because every stock that had 4 symbols (meaning it was listed on the NASDAQ) was going up... especially if the name of the company had dot com at the end of it. CNBC had even given a new phrase to the tech industry called "The New Economy." They were referring to the PC/Internet revolution. CNBC even built celebrities such as Cramer, Kudlow, Maria Bartiromo, Henry Blodget, Mary Meeker, Abby Joseph Cohen. People like Mark Cuban made their wealth during this run. It was a juggernaut.
But all good things come to an end. And did it come to an end! Just as epic as the run up... the downfall was even faster and more furious. Tom Costello would stand in front of the Nasdaq leaderboard on CNBC as if he were standing in front of a burning building. It was like he was watching the entire world's wealth just disappear. The tone in his voice changed to somber and he looked like he wanted to just put a sheet over the screen of red ticker symbols as if there was too much carnage to show live on TV. It was the end of something so perfect... so epic. But that is just it.... for it to be so epic it had to be too good to be true. Something was too perfect and unable to replicate. It will be remembered for the next 100 years and beyond just like the Great Depression. There will always be more booms and busts. Money will flow into different asset classes and over inflate them. But it will never replicate the perfect storm that was 1999/2000!
No comments:
Post a Comment