, Research Paper

Rise of the Tech Stocks

3-2-00

Rough Draft

Over the past few old ages, many millionaires have been created due to the economical detonation of the stock market. The market isn T merely turning, as it did in the mid to late 1970ss ; but it is on steroids, and is turning like ne’er earlier. Backed by the relentless, yet sometimes convulsive, growing of the NASDAQ Composite, Wall Street s impact on the hereafter can non be denied. For every bit long as the market has been in being, drastic alterations such as these have ne’er taken topographic point. What amazing power could hold produced so much money in so small clip? What colossal force could hold caused the United States economic system to boom? The reply lies in one, simple, late coined phrase: the tech stock.

The stock market has been around since people traded silver for ownership of cargo 200 old ages ago, yet many people don t cognize how it works, or where their money goes when they purchase a stock ; they merely think & # 8220 ; purchase low, sell high. & # 8221 ; Although this is a good basic investing program, it is imperative that one knows where his money is headed when he buys a thousand dollars deserving of a specific stock. When 1 purchases a stock, they are really buying portion of a company ( Brian 1 ) . The ground one would make this is because he wants portion of the net incomes of the company. If one purchases 1 % of a company, he will have 1 % of the income, to set it in a simplified mode. The money the company additions from selling their stock is placed back into the company. This manner, the company can turn, and bring forth more net incomes for the shareholders. The company s value is represented by the stock monetary value on the stock exchange ( Brian 2 ) . Over clip, a method of judging a stock s public presentation, called the & # 8220 ; net income to gaining ratio & # 8221 ; was created. & # 8220 ; P/E is stenography for the ratio of a company & # 8217 ; s portion monetary value to its per-share net incomes. For illustration, a P/E ratio of 10 agencies that the company has $ 1 of one-year, per-share net incomes for every $ 10 in portion monetary value ( Green 1 ) . & # 8221 ; This ratio fundamentally represents how much money the investor is seting in per dollar earned. This was by and large a good thing to look at when taking a stock to put in, but the P/E ratio can be deceptive, particularly in the few tech stocks that have enormous stock monetary values, yet have small net net income.

No 1 knows precisely when the tech stock came approximately, but it seems like it came all at one time. The phrase & # 8220 ; tech stock & # 8221 ; merely refers to all stocks that deal with any signifier of engineering related, straight or indirectly, to the computing machine or computing machine french friess. A good part of the popular tech stocks today trade with the Internet ( Brian 4 ) . One ground for this is the easy entree by 1000000s of people worldwide. Small companies are able to make out to the whole Earth with merely a few vaulting horses, and therefore become comfortable over a short sum of clip. Just a few of the most popular tech stock corporations include: Microsoft, Apple, TI, Amazon, Yahoo, and Dell. Companies such as Microsoft, Apple and Dell are companies that handle computing machines straight, and have been around for a long clip ( NASDAQ 5 ) TI creates many semiconducting materials that are found in most all merchandises that have computing machine french friess in them. Amazon and Yahoo are both straight related to the Internet. These companies are popular due to their originality and concern direction. However, popularity barely additions net income, so why is it that Yahoo can do so much money on the stock market? Surprisingly and ironically plenty, it is exactly popularity that causes its additions. Because of the popularity, people continue to buy Yahoo s stock. Although the company International Relations and Security Network T doing direct net income, it surely makes a batch of money from the stock purchases, so the company really makes the money off of the stock market ( Brian 5 ) . Rare, so, to see this at such an extreme. With all of this success must come organisation, and therefore is the function of the NASDAQ Composite.

Although NASDAQ came approximately long before the rise of tech stocks, it now represents the growing that they portray. This is largely due to the big volume of bluish bit Internet stocks that have joined the Composite, every bit good as the little proficient companies that are looking for a large interruption. Duarte summarizes the whole NASDAQ existence in one time sentence ; & # 8220 ; The NASDAQ is fueled by bluish bit stocks and little caps which explode into high-earnings ( Technology 1 ) . & # 8221 ; And detonate it did. In merely over one twelvemonth, & # 8220 ; The Index gained 1876.62 points and 85.59 per centum for the twelvemonth. The NA

SDAQ Composite Index besides eclipsed the 3000 and 4000 point mileposts during the last one-fourth of 1999? ( Nasdaq 1 ) . This far surpasses the Dow Jones Industrial, which merely gained 25.22 % over the 1999-2000 twelvemonth. “The market s best index performing artists were the computing machine, telecommunications, and biotechnology up 105.03 per centum, 102.71 per centum and 101.64 per centum respectively” ( Nasdaq 2 ) . This evidently displays a turning involvement in the tech stock, which has caused this major rebellion to happen. One may inquire how the Dow Jones Industrial got off so bad, because, after all, it represents our states largest companies.

For a long clip, the Dow Jones Industrial has represented the stock market as a whole, but times change. One cause of this alteration is the high involvement rates that affect the corporate stocks such as Wal-Mart and ExxonMobil. These stocks cut down in monetary value as a consequence of this, and hence, the Dow norm reflects the lessening. The Dow Jones blue french friess remain stable, but haven Ts increased dramatically, and this isn T sufficient to do up for the losingss of the stocks that tanked, such as banking stocks, fiscal stocks, and oil selling stocks ( Duarte, Technology 1 ) .

One thing that everyone admirations is & # 8220 ; Is the gold haste over? & # 8221 ; The reply is no, non as of 3-2-00, anyhow. However, all good things must come to an terminal ; the inquiry is when. Milton Friedman and Alan Greenspan are both major governments in Wall Street, and when they speak, the universe of investors listens. The one bad thing is this, they normally ne’er agree. In late 1999, Friedman & # 8220 ; suggested the current market looks similar to the pre-crash markets in the U.S. in 1929 and the pre-crash market in Japan in 1989. & # 8221 ; Soon after, & # 8220 ; Greenspan made every bit chilling comments about the stock market and the wealth consequence & # 8221 ; ( Duarte, Greenspan 1 ) . These are singular governments in the universe of puting, but these notes don T specifically speak about the tech stock falling. Some people believe that the alleged & # 8220 ; clang & # 8221 ; that they spoke of has already happened at the bend of the millenary, when both the Dow Jones and the Nasdaq fell at record-breaking volumes. This proved that the NASDAQ wasn T unbeatable with its cherished tech stocks, but it besides started an ugly observation that whatever the Dow does, the NASDAQ does at a more showy rate ( Jennings 1 ) . This merely means that if the Dow goes up a small, the NASDAQ goes up a batch. When the Dow drops a small, the NASDAQ drops a batch ( Fool 9 ) . However, there s no concrete grounds to turn out this theory that they are connected someway.

January 4th, 2000 ; a suspiration of alleviation expanses the universe as nil excessively awfully lay waste toing happens on the bend of the millenary. However, this sigh turns rapidly into a pant ; at least for those watching the stock market. The Dow Jones plumb bobs about 360 points, and NASDAQ plumb bobs about 230 points in merely one trading twenty-four hours. The following two yearss, NASDAQ continues to fall another 200 points, ensuing in about a 8 % bead in merely three yearss. It recovers from this bead in merely about two yearss, merely to drop back into a lower cavity in three more yearss. Those who held onto their pocketbooks for this roller coaster drive found a visible radiation at the terminal of the tunnel, and by the terminal of February, the Composite had climbed to the 4600 grade, 600 points higher than at the beginning of the twelvemonth ( Fool 1 ) . Many other times in the first one-fourth of 2000 NASDAQ took a brawny autumn, but it ever regrouped and rallied to excel it is original monetary value. Another thing to retrieve is that NASDAQ International Relations and Security Network T made wholly of tech stock bluish french friess such as Dell and Amazon ( Nasdaq 1 ) . It is besides made up of little caps that fail, big caps that fail, and those penny stocks that people get so worked up about that besides fail ; so it is difficult to judge how good tech stocks are really making by looking straight at the NASDAQ Composite or P/E ratios.

Technical school stocks are still a comparatively new thing for the market, and investors haven t yet predicted their destiny. However, they are still intensely popular, and every bit long as they are popular, people will maintain purchasing ; and, of class, if people buy them, they will raise in value. Technology is non traveling off any clip shortly, there s no uncertainty about that ; the hereafter is now. Computers rule our life style, doing everything faster, easier, cheaper, more efficient ; and these tech stocks represent our new economic system based on this new efficient system. Even though they may non show themselves every bit strongly as they one time did, tech stocks are decidedly here to remain.