I have resisted the comparison between the dot-com bubble and today’s stock market, but the similarities have become too strong to ignore. Here are five areas where the parallels are strong, along with a warning about applying the bubble label to the broader market.
Exponential growth in the share price of history
Anything connected to electric vehicles or clean energy has become ballistic in recent months. Electric car maker Tesla is the most obvious example, becoming the fifth largest company in the United States in value, after rising eight times last year. So far this year, it has added $ 134 billion to its market capitalization, far more than the $ 78 billion it was worth in early 2020.
A flurry of early stage IPOs exploring popular topics
Initial public offerings and money deposits from special-purpose acquisition companies, or SPACs, now used as an alternative are growing, attracting celebrity sponsors and allowing companies without any revenue, 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 it started in 2009. Perhaps the most extreme has been QuantumScape, part of Volkswagen, which hopes to market its experimental state batteries solid. The figure tripled to more than $ 25 billion in December, according to Refinitiv, before dropping to more than half.
New investors who don’t know what they’re doing
Don’t get me wrong, there are many smart and well-informed small investors. But stocks are again being affected by the type of amateur mistakes made by a beginner in the hope of winning big. One I recently wrote about is buying a stock simply because its price is low, which should be irrelevant, but which boosted performance in the first weeks of this year.
Even more painful is buying the wrong shares, as happened with last year’s race for Zoom Technologies, which owns the ZOOM ticker and not much else, instead of the more well-known Zoom Video Communications (ZM ticker). This month, Elon Musk’s call to use Signal, an alternative to Facebook’s WhatsApp messaging software, caused the unrelated biotechnology action Signal Advance (ticker: SIGL) to jump from 60 cents to $ 38.70. It has fallen since then, but is still at $ 6.25, which is disconcerting.