→ Module 2 2000 Investing Strategy: Navigating the Dot-Com Bubble & Aftermath

2000 Investing Strategy: Navigating the Dot-Com Bubble & Aftermath

The year 2000 marked the peak of the dot-com bubble and the beginning of its spectacular collapse. This guide shows how to invest wisely during this turbulent period, avoiding pitfalls while capitalizing on emerging opportunities.

Step 1: Understanding the 2000 Market Landscape

Key Economic Factors

Dot-com mania peaks (Nasdaq hits 5,048 on March 10)
Fed tightening cycle (6 rate hikes in 2000)
Y2K spending hangover
Early mobile/wireless revolution
Old economy vs. new economy divide

Available Tools

Online brokers (E*Trade, Ameritrade - $15-30 commissions)
Yahoo Finance (basic charts/news)
CNBC (becoming mainstream)
Printed research reports (Merrill Lynch, Morgan Stanley)

Step 2: Smart Investment Strategies for 2000

1. The Dot-Com Survival Strategy (March 2000+)

AVOID:

Profitless tech (Pets.com, Webvan)
Companies with "eyeballs not earnings"
Telecom equipment overcapacity (Lucent, Nortel)

SAFE HAVENS:

Microsoft (Windows 2000 launch)
Cisco (real revenues, but still overvalued)
Intel (Pentium 4 processor)

2. Value Investing Comeback

Undervalued Sectors:

Energy (Oil rising from $10 to $30)
Financials (Bank mergers accelerating)
Healthcare (Pfizer, Merck stable)

3. Short Selling Opportunities

Prime Short Targets:

Dot-com IPOs trading at 100x sales
Fiber optic companies (Global Crossing)
B2B exchanges (Commerce One)

4. Dividend Stocks for Safety

Reliable Payers:

Johnson & Johnson
Procter & Gamble
ExxonMobil

Step 3: How to Research Stocks in 2000

1. Critical Metrics

Positive cash flow
P/E under 30
Real profit margins

2. Information Sources

10-K filings (SEC EDGAR database)
Value Line reports
The Wall Street Journal

3. Technical Analysis

200-day moving average breaks
Volume spikes on declines
MACD divergences

Step 4: Executing Trades in 2000

Process

Phone call to broker ($30 commission)
Limit orders crucial (high volatility)
Settlement: T+3

New Dangers

Extended hours trading introduced (more volatility)
Decimalization begins (narrower spreads)

Step 5: Risk Management

1. Diversification

30% Value stocks
20% Cash
20% Short positions
15% Energy
15% Healthcare

2. Exit Signals

Nasdaq breaks 4,000 (April 2000)
Fed keeps hiking rates
IPO market dries up

Sample 2000 Portfolio

Stock	Sector	Strategy
MSFT	Tech	Defensive tech
XOM	Energy	Oil recovery
JNJ	Healthcare	Defensive
PFE	Pharma	Stable
CASH		Dry powder

Historical Outcomes

Nasdaq: -39% in 2000
S&P 500: -10%
Value stocks: Outperformed by 25%+

Key Lesson: 2000 rewarded skepticism, fundamentals, and patience. The best trades were avoiding hype and shorting bubbles.