How the World Got Wired · Sock Puppets and Pet Food

Everyone Was a Stock Trader

What made all of this possible was not just the investors at venture capital firms. It was ordinary Americans.

Sometime in 1997 and 1998, a strange thing happened to the United States. Ordinary people — taxi drivers, dentists, schoolteachers, retired grandparents — started becoming, in their spare time, stock traders. They quit, or scaled back, their jobs. They sat at home in front of computers all day, buying and selling stocks. The newspapers and the television shows talked about almost nothing else. Stories spread of people who had, on a tip from a chat room, made a year’s salary in a single afternoon by buying the right internet stock.

Most of those stories were either exaggerated or selectively told. For every person who made a year’s salary in a day, there were many more who lost their savings. But the stories of the winners were what people heard. The stories of the losers were quietly forgotten, because losers don’t usually call up the local newspaper.

A few people on television became famous for predicting which internet stocks would go up. They were called analysts. A young woman at Morgan Stanley named Mary Meeker — sometimes called the Queen of the Internet — wrote reports that, when they came out, would move the price of stocks by billions of dollars. A man at Merrill Lynch named Henry Blodget set “price targets” for stocks that seemed absurdly high, and then, sometimes, the prices reached them. Several years later, Blodget would be disgraced for, among other things, writing publicly that some stocks were good investments while privately writing emails describing them as terrible.

Almost nobody, in 1999, was famous for predicting that any of these stocks would go down.

There was a phrase that everyone used to make sense of what was happening. The phrase was the New Economy. The idea was that the rise of the internet had changed the fundamental rules of business, and that the old way of thinking about company values — looking at how much money they earned, comparing to other companies in similar industries — was outdated. In the New Economy, the smart play was to bet on the future. Anyone who refused to bet was, in a memorable phrase that got repeated everywhere, just not getting it.

A few older investors did refuse to bet. The most famous of them was a man named Warren Buffett, who ran an investment company called Berkshire Hathaway. He looked at internet stocks, said he didn’t understand them well enough to know what they were worth, and refused to buy any. He was widely mocked for this. He was called out of touch. He was an old man, people said, who didn’t understand the New Economy. His company’s stock performed poorly compared to the dot-com stocks for several years.

Buffett’s company, for the record, is still around today. Most of the companies whose investors mocked him are not.

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