We resisted the comparison between the dot-com balloon and today’s stock market, but the similarities became too strong to be ignored. Here are five areas where the parallels are strong, along with a single precaution about applying the bubble label to the wider market.
The exponential increase in the price of historical stocks
Anything related to electric vehicles or clean energy has become ballistic in recent months. Tesla, the manufacturer of electric cars, is the most obvious example, becoming the fifth largest company in the US by value, after growing eight times last year. This year, so far, it has added $ 134 billion to its market capitalization, far more than the $ 78 billion it was worth in early 2020.
A flood of early-stage IPOs that hit popular themes
The initial public offerings and cash amounts of special purpose procurement companies, or SPACs, now used as an alternative, have increased, attracting celebrity supporters and allowing non-profit companies, not to mention profit, to join the market. The Renaissance IPO index, which tracks new records, doubled last year, by far the best performance since it began in 2009. Perhaps the most extreme was QuantumScape, partly owned by Volkswagen, which hopes to market its experimental batteries in solid state. The value tripled to more than $ 25 billion in December, according to Refinitiv, before falling by more than half.
New investors who do not know what they are doing
Don’t get me wrong, there are a lot of smart, well-informed small investors. But the actions are again changed by the kind of amateur mistakes made by a beginner who hopes to win big. One I wrote about recently is to buy a share just because its share price is low, which should be almost irrelevant, but which drove the performance in the first two weeks of this year.
Even more torturous is buying the wrong stock, as happened with last year’s rush in Zoom Technologies, the owner of the ZOOM ticker and not many others, rather than the better known Zoom Video Communications (ZM ticker). This month, Elon Musk’s call to use Signal, an alternative to Facebook’s WhatsApp messaging software, led to the independent stock of biotechnology Signal Advance (ticker: SIGL) jumping from 60 cents per share to 38, $ 70. It’s been down since then, but it’s still $ 6.25, puzzling.