What Today’s Eager Investors Can Learn From The Dotcom Bubble

Picture this. It’s 1999, the height of the dotcom boom, and I’m a college kid getting investment tips from the earliest forums on the Internet. I’m absolutely killing it with each trade I make, and the rush I’m feeling is second-to-none. I remember making more money on one trade than my dad had made in his entire life of investing with his stuffy broker. I thought I could do no wrong, until …

The boom went bust. I lost everything in my trading account and my dad got the last laugh.

These days, roles have reversed. After two decades of investing in and building companies of my own, I’m the skeptical old guy looking at this new crop of investors on Reddit and Robinhood with their meme stocks and cryptocurrency and wondering where this is all heading.

So what advice can this dotcom veteran impart to a new generation of traders?

Well, it’s complicated … and it’s probably not what you’d expect. A reckoning may be on the horizon, but it’s not all doom and gloom.

Lesson 1: The “good old days” weren’t great

Let’s not romanticize the kind of old-school investing my father did. You’d put your money with an advisor who probably worked for a bank and it would sit in mutual funds or in bonds, making small returns while the advisor and fund manager took exorbitant fees. Out of sight, out of mind.

That approach is losing favour fast. There’s been a significant erosion of trust in financial institutions; the middle class has been gutted, which only got worse during the pandemic; and the world has become a place where “slow and steady” no longer makes sense. Younger investors are taking the reins and demanding more from their money. This kind of empowerment is a good thing.

Lesson 2: More access equals more power

Historically, advice and expertise were held by gatekeepers within the financial industry. Access was an issue and financial literacy was minimal.

I benefited from the first waves of opening. First accessible by phone, discount brokerages migrated online to desktop platforms where for a modest fee anyone could trade securities. There, I learned the mechanics of buying and selling and developed a tolerance for risk. I wouldn’t be where I am today without those lessons.

Fast-forward 20 years and it’s never been easier to access stock markets and begin investing. Apps like WealthSimple and Robin Hood have democratized access all over the world, especially for young people. This is a net positive, without a doubt. Markets are a powerful tool for wealth creation and access is power. The days of a tiny cohort — with a marginal edge in knowledge — controlling access to investments and ripping us off mightily are over.

But there’s a caveat.

Lesson 3: The “wisdom of the crowd” is easier to manipulate than ever

Back in my dotcom days, we got our stock insights from newspapers, Hardball, and the earliest internet forums. As we learned after the crash, these sources didn’t always have our best interests at heart.

These days, sources of financial info have exploded. At the peak of the GameStop madness, the r/wallstreetbets forum on Reddit gained 2 million new users in one day. Others are flocking to TikTok, YouTube and an arsenal of websites dedicated to this new wave of investing.

Some of it’s great. Lots of it is garbage.

The big challenge in our algorithm-fueled world is it’s increasingly easy to sway opinion and get sucked into your own self-affirming echo chamber of nonsense. A mistake we made 20 years ago was taking advice from self-described experts during a bull market, when everyone was making money. Now take those rudimentary forums and juice them with steroids. That’s the situation for new investors today. Bad actors have all the tools to reach the masses and it can be hard to spot bad advice.

Lesson 4: Don’t dismiss new investment vehicles

Crypto. Meme stocks. NFTs. It’s tempting to dismiss these as reckless fads. But here’s where a historical perspective can help.

New is always scary — there was a point where people thought you were crazy for investing in Apple, Google and Amazon — but understanding and acceptance grow with time. There are aspects of today’s market that will prove to be nonsense, but others will persevere.

Cryptocurrency has reached a critical mass of users, with help from banks, retailers and payment processors like PayPal and Square. NFTs have been adopted by major influencers and are going mainstream as a better way for creators to monetize.

Be critical, but don’t be afraid to embrace the new.

Lesson 5: A correction is coming. Learn from it.

The frenzy of the dotcom years initiated a new generation in how to buy and sell online. Sure, we tanked after a while, but we also learned the fundamentals of investing.

We’re in for a similar reckoning now. The pandemic — which propelled DIY investing to unprecedented heights — was a freakishly unique event. Maybe it was isolation and boredom. Maybe it was stimulus checks. But in five months, more money was dumped into stocks than in the prior 12 years combined.

That can’t and won’t last. Some Gen Z investors have already learned lessons from trading Bitcoin, as a single Elon Musk tweet sent it spiralling earlier this year. But that’s nowhere near the correction (or crash) some are predicting.

From where I stand, there are positives even if this all goes down. A correction can limit the influence of meddling manipulators, reducing the chance a stock can be tanked by a tweet or a Reddit forum. It can result in more people making educated investments in stocks they’ve actually researched, rather than simply following the hype. And, a major correction can expedite financial literacy in a younger generation through hard-earned lessons.

This is a game-changing period in the financial world. I’m 44 years old and I’ve seen these moments before. But I’ve seen enough to know I’m bullish on the future.

A version of this article was originally featured in Forbes. Keep up with my latest posts by following me here or on Twitter and Instagram.