Case Study: The Dot-Com Bubble Through a Behavioural Lens (1995–2002)

Between 1995 and 2000, the Nasdaq Composite rose 582%. Between 2000 and 2002, it fell 78%. Every bias documented by Kahneman, Thaler, and Shiller was operating simultaneously during this period. The dot-com bubble is the most thoroughly documented mass behavioural event in financial history — and it contains every lesson the behavioural investor needs to understand about how psychology creates and destroys market value.

Why This Matters

The internet was a genuine technological revolution. The error was not believing in the technology — it was assigning appropriate valuations to it. At the peak in March 2000, the Nasdaq was valued at approximately 175x trailing earnings. Pets.com (an online pet supply store) had a market capitalisation exceeding $300 million with $600,000 in annual revenues. Webvan (online grocery delivery) raised $375 million in its IPO before achieving any meaningful revenue. These were not irrational investors — they were intelligent professionals operating under the influence of a cascade of identifiable cognitive biases.