Major changes since 2000 include the Sarbanes-Oxley Act of 2002, which made the “go public” versus “stay private” decision much more complicated, because of the additional cost and regulation required. Where many inexperienced companies went public in the 1990s, now they’re more mature. They have been able to fine-tune their business models longer as private companies, have mature management teams and capital structures, and have built a history of revenue growth. [2] People are doing a lot more work to try to understand the businesses they are investing in, and not assuming companies will be able to continuously raise capital. Many of those businesses weren’t built on fundamentals. They were built on speculation, theory and buzz. [2] Companies …show more content…
[6] The consolidation of the U.S. railroad industry in the 20th century shows this pattern. In 1929, there were 163 "Class I" railroads in the U.S. Today, there are seven Classe I railroads remaining, and they carry more than 90 percent of the rail freight in the U.S., according to the Association of American Railroads in Washington, D.C. [6] Perception of the business models for e- business The perception that the business models for e-businesses were different, and did not need to follow traditional Web retailers underestimated how much infrastructure they would have to build and how much logistics work they would need to do to duplicate traditional brick-and-mortar retailers. Companies that were supposed to be "virtual operations" ended up with warehouses and inventories almost as large as those of traditional retailers [6] Web retailers have found that customer-acquisition costs were much higher than they anticipated. And, to make matters worse, traditional retailers have launched their own Web operations and proven to be formidable competitors. [6] Most of the advertising dollars were going to a few large sites, leaving thousands of smaller sites to starve. Investment …show more content…
Many companies are too speculative Companies are appraised by measuring their future profitability. However, speculative investments can be dangerous, as valuations are sometimes overly optimistic. Never invest in a company based solely on the hopes of what might happen unless it’s backed by real numbers. Instead, make sure you have strong data to support that analysis – or, at least, some reasonable expectation for improvement. 3. Sound business models are essential Many investors were not realistic concerning revenue growth during the first Internet bubble, and this is a mistake that should not be repeated. Never invest in a company that lacks a sound business model, much less a company that hasn’t even figured out how to generate revenue. 4. Basic business fundamentals cannot be ignored When determining whether to invest in a specific company, there are several solid financial variables that must be examined, such as the company’s overall debt, profit margin, dividend payouts, and sales forecasts. In other words, it takes a lot more than a good idea for a company to be successful. For example, MySpace was a very popular social networking site that ended up losing over $1 billion between 2004 and