The Internet Didn't Bubble, It Boomed

I mentioned on Jan. 7 that I was engaged in an off-line debate with Cody Willard as to whether 1999 was a bubble, and that I said no. That engendered a lot of feedback, so with apologies for the delay, herewith is the more I promised on this issue.

Today I'll trace the impact the Internet has already made on the markets and the economy, from the early site-building enterprises to the current Internet bubble of profits and growth. I'll also compare the Nasdaq of 1998 to 2002 with a past "bubble" phenomenon, before elaborating on the substantive business that the Internet has become.

The Defining Moment

In the early 1990s, I gave up grad school and the hope of a life in academia and moved to New York. Pretty soon I realized that maybe only 20 other people in the city at that time knew how to make a Web site, so my brother-in-law and I started a company doing Web sites for start-up companies like American Express, Time Warner, Con Edison and Disney, and we were able to charge about $500 an hour for our services, simply because there was nobody else out there making Web sites. Of course, before long, every company in the world had a site, junior high school kids were learning how to make Web sites in school, and the industry that I, to a tiny extent, helped seed quickly became a commodity.

During that time, which I call the "defining period of my life" and most other people call "the Internet bubble," hundreds of companies came public, reached what seemed like outrageous valuations, and then came tumbling down to earth, and in many cases, bankruptcy. The horror stories still exist of people who were worth millions and then worth nothing.

Certainly the impact of the stock market bust that followed the defining period of my life was very real and hurt hundreds of thousands of people. In a 10-block radius from where my office was at the time, 150,000 people lost their VP jobs within a year, and cafes up and down Broadway went out of business.

---

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and the upcoming Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback and invites you to send it to [e-mail].

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.