Finger pointing after the dot-com implosion

A) Analysts
B) Underwriters
C) Individual investors
D) All of the above

Most folks would pin the blame on analysts and underwriters. As CNET News.com's three-day special report shows, Wall Street's investment bankers and analysts had a lot to do with hyping questionable dot-coms.

The role of individual investors, however, is usually overlooked. Too often, investors want to blame someone else for their mistakes. Shareholder lawsuits emerge whenever a stock falls. Message board jockeys bemoan big losses. Seldom do people look in the mirror and ask what they could have done differently.

If investors didn't go gaga over dot-coms, those same CEOs and bankers you may want to call crooks would have never been able to cash out. "Dot-com executives weren't the ones who bid up the stock prices," said David Diesslin, a financial planner in Fort Worth, Texas.

Why weren't investors diversified? Why didn't they peruse filings with the Securities and Exchange Commission? Why didn't investors have a speck of healthy skepticism?

They were too greedy to care. In late 1999 into early 2000, individual investors got greedy along with everyone else in the dot-com food chain. Investors bought Internet companies that had no prospects for profits and unrealistic growth targets.

There's an old rule that applies to investing and life in general: If it sounds too good to be true, it usually is. That adage was thrown out the window amid the glow of dot-com shares.

The warning signs were there. The press flagged a meltdown, but negative reports were shunned because the stocks kept going up. The SEC had many risk factors listed in regulatory filings.

Even a few analysts raised red flags. Jonathan Cohen, who was Merrill Lynch's Amazon.com analyst in 1998 and early 1999, was bearish on the e-tailer well before it was cool. Unfortunately, Cohen's analysis didn't do wonders for Merrill's investment banking business. Cohen wound up at Wit SoundView, and Merrill replaced him with the much more upbeat Henry Blodget.

Cohen and others like him were panned. After all, the "New Economy" was different.

Sure it was.

How did former Broadcast.com honcho Mark Cuban know it was time to sell? He had experience on his side. He saw the PC and software booms end abruptly. After Yahoo bought Broadcast.com, Cuban sold his shares and became a billionaire.

"It wasn't so much a diversification strategy as an 'avoiding the crash' strategy," he said.

Is Cuban a bad guy? Or are we all jealous because he had enough sense to take profits?

In fact, Cuban said he told many of his former employees to cash out. After Yahoo bought Broadcast.com, paper millionaires were abundant. Many employees didn't listen and later asked Cuban whether he regretted selling when he did since Yahoo shares doubled from the time he sold.

Cuban's troops weren't the only ones who didn't listen. A handful of executives cashed out in time to preserve their fortunes, but many didn't. Like many investors, a lot of dot-com executives rode shares all the way to the top and back down again.

Everyone drank the same Kool-Aid.

The good news? The dot-com debacle has educated a generation of investors. Many investors had never endured a bear market and now have a lot more knowledge. Profits matter. Valuations matter. Regulatory filings matter.

In the end, investors learned there's a big difference between investing and gambling. It was a lesson learned the hard way.