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What Made For a Uniquely Bad Industry in (2000)?

Around the year 2000, there was a uniquely bad industry "set" (spanning more than one industry) from an investor point of view called telecom media tech.

It actually started with a valid idea, that the three industries would "merge." What made it a bad one was that people took it too far and got carried away with the resulting valuations.

A new technology called the Internet created an investment craze much like the radio craze of the 1920s, when the idea of a single "broadcast" being carried by a "black box" (radio) in every home in America was a new one. Ditto for the internet, with its promise of global connectivity.

Actually, the internet had been in the making for more than two decades before the mid-1990s. The computer technology had been available as early as the mid-1970s. New inventions like "faxes" made possible the transmission of large amounts of data in "real time." What "drove" the internet was the prospect of cheap, high-speed telephone lines "bandwidth," together with cheap, high-speed computers. Thus, it represented merely an acceleration of existing trends, NOT a break from the old trend lines.

In 2000, Bernie Ebbers of Worldcom told the FCC that internet usage was doubling every 100 days, or ten times that year. In fact, it "only" doubled for the WHOLE YEAR. That was a BIG LIE, one that should have sent Ebbers to jail. "Little" lies, about whether "line costs" were capitalized or expensed under accounting rules were "small" by comparison; in either case, the money had been spent.

Companies like Global Crossing ramped up for a SIX fold increase in capacity in 2000. If they had merely doubled it, they would have been fine, but they were taken in by Ebbers' claims. Instead, they spent themselve bankrupt. Both managements and investors believed the "hype," and overestimated the growth potential of an already "hot" sector. When reality set in, the folly of much of the "investment" was exposed, resulting in stock price falls.