I’ve resisted the comparison between the dot-com bubble and the current stock market, but the similarities have become too strong to ignore. Here are five areas where the parallels are strong, along with one caveat about applying the bubble label to the wider market.
Exponential growth in the price of story stocks
Everything to do with electric vehicles or clean energy has gained momentum in recent months. Electric carmaker Tesla is the most obvious example, becoming the fifth-largest US company by value after an eight-fold increase last year. This year, it has added $ 134 billion to its market cap so far, far more than the $ 78 billion it was worth in early 2020.
A deluge of early stage IPOs tapping into popular themes
Initial public offerings and the money scales of special takeover companies, or SPACs, now used as an alternative, have skyrocketed, attracting celebrity sponsors and allowing companies without any income, let alone profit, to enter the market. The Renaissance IPO index, which tracks new listings, more than doubled last year, by far the best performance since its inception in 2009. Perhaps the most extreme was QuantumScape, partially owned by Volkswagen, which hopes to expand its experimental solid-state batteries. commercialize. According to Refinitiv, it tripled in value to more than $ 25 billion in December, before dropping by more than half.
New investors who don’t know what they are doing
Don’t get me wrong, there are plenty of smart and knowledgeable small investors out there. But stocks are flipped again due to the kind of amateur mistakes of a beginner hoping to win big. One thing I wrote about recently is to buy a stock purely because the stock price is low, which should be almost irrelevant, but which has boosted performance in the first few weeks of this year.
Even more excruciating is buying the wrong stock, as happened last year with the rush of Zoom Technologies, owner of the ticker ZOOM and not much else, in place of the more famous Zoom Video Communications (ticker ZM). This month, Elon Musk’s call to use Signal, an alternative to Facebook’s WhatsApp messaging software, led the unrelated biotech stock of Signal Advance (ticker: SIGL) to jump from 60 cents a share to $ 38.70 . It has since fallen, but is still standing at $ 6.25, mind-boggling.