... [S]ince September, the boom [in Internet-infrastructure-related stocks] has turned into the deepest bear market for technology stocks in a generation, as investors worry about the prospects for continued growth. ...
When the dot-com bubble burst in the spring, a roaring economy hardly noticed. The broad crash in technology stocks this fall has swept over more investors and bigger companies by far, erasing more than $3 trillion in stock market value — enough to destroy the portfolios of investors who moved into technology stocks late, though long-term investors remain ahead. Today, it is a major factor in the slowdown in the American economy.
Analysts, economists and business executives now worry that the binge may take years to cure. Blinded by the potential for vast new markets, they say, companies and investors alike fell into bad habits that Wall Street only encouraged.
Corporate managers came to value sales growth over profitability, adding employees and building factories in expectation of limitless demand. Putting too much trust in the executives' rosy predictions, Wall Street analysts failed to independently investigate the prospects of the companies they covered. In turn, investors, as they had with the dot- coms, forgot the most basic rule of valuing stocks — that profits ultimately dictate share prices.
The excesses were not confined to information-technology companies. Retailers like Gap also grew too fast. Biotechnology companies with dim prospects found financing. Even slow-growing media companies like Time Warner convinced investors that they should be valued for their prospects, not their paltry profits.
[BTW, today's NYT also has an article on Tom Frank, "An Author Savagely Indicts Notions of a New Economy": http://www.nytimes.com/2000/12/21/business/21ANTI.html]
Carl
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