Nasdaq anniversary has sobering lessons

While the Nasdaq Stock Market lists only about a quarter of the publicly traded companies in the United States, it took on disproportionate importance in the late 1990s.

Some of the biggest initial public offerings in history — many of which ended up discarded, bought or dismantled — were done on the Nasdaq. Dot-coms with huge ambitions and no profits took investors’ capital freely, despite a lack of revenues, let alone actual profits — then ultimately folded and left shareholders stuck with the bill.

With those kinds of false business models rightly discredited, the stocks listed on the Nasdaq today are leaner and far more viable. But by the same token, the wild spate of innovation and job growth that fueled the boom disappeared along with investors’ money.

Proof of the changed atmosphere rests with two other major market measures — the Dow Jones industrial average is carefully treading back toward 11,000, down from its own peak of 11,722.98, reached Jan. 14, 2000, and the Standard & Poor’s 500 index is down over 20 percent from its all-time high of 1,527.46, reached March 24, 2000.

Corporate conservatism
The lagging Nasdaq isn’t the only sign that the dot-com era is gone. Compare the March 2005 issue of Fast Company magazine, one of the earliest “New Economy” business magazines, with an issue from October 2000. The 2005 issue has 96 pages. The 2000 issue weighed in at 406.

The time of expensive offices with $800 Aeron chairs and skyscraper views — for start-ups without profits even — has also passed. Big spenders are frowned upon. Look at Amazon.com Inc. — employees, including founder Jeff Bezos, worked at desks made of doors and two-by-fours. Companies that were careful with their money survived. Others did not.

It wasn’t that the ideas were wrong. Some companies simply failed to execute a sound business plan. Others piled into a crowded arena and failed to set themselves apart from the crowd. And still others were simply overly ambitious, failing to account for the fact that the Internet boom would ultimately have to settle down.

“The vision was there, but the people involved in the whole dot-com bubble based so much of their businesses on assumptions that couldn’t last,” said Joseph Battipaglia, chief investment officer at Ryan Beck & Co. “There was a chance that those assumptions — that the Internet would continue to grow and businesses would continue to spend on technology at those high levels — could have gone on a while. But they didn’t.”

Corporate America learned its lesson from the high-tech bubble. Sky-high promises have been replaced with ultra-conservatism when it comes to predicting profits — which has led to many companies deliberately lowering their profit expectations in order to then beat those expectations when earnings time rolls around.

And companies are also cautious about hiring and innovation, preferring to squeeze the last trickles of efficiency out of current operations rather than expanding through innovation and hiring new workers. As a result, there are fewer new jobs, slow capital spending for new equipment — and stock prices on the Nasdaq that remain in the cellar.

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