I am facing comparisons 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 similarities are strong, as well as a caution about placing bubble labels in the broader market.
Story Stock Exponential Growth
Anything related to electric vehicles or clean energy has gone ballistic in the last few months. Electric-car maker Tesla is the most obvious example, becoming the fifth-largest US company by value, after growing eight-fold last year. So far this year, it has added $ 134 billion to its market capitalization, up from $ 78 billion in early 2020.
A flood of early-stage IPOs tapping into popular topics
Initial public offerings and special purpose acquisition companies’ cash shells, or SPACs, have now been used as an option, growing rapidly, attracting celebrity backers and allowing companies without any revenue, let alone profit , To join the market. The Renaissance IPO Index, which since its launch in 2009, tracks new listings by far the best performance, is double that of last year. Perhaps the most extreme was Quantumscape, part of Volkswagen, which hopes to commercialize its experimental solid-state batteries. It tripled in value to more than $ 25 billion during December, before falling more than half, according to Refinitiv.
New investors who don’t know what they are doing
Don’t get me wrong, there are a lot of smart and well-informed small investors. But once again, stocks are rebounding due to amateur mistakes made by beginners hoping for a big win. One I recently wrote about is to buy a stock purely because it has a low share price, which should be irrelevant to all but broke performance in the first few weeks of this year.
Even more annoying is buying the wrong stock, as happened with last year’s uproar by Zoom Technologies, the owner of Ticker ZOOM and not much else, rather than the well-known Zoom Video Communications (Ticker ZM). The call to use Elon Musk’s signal this month, an alternative to Facebook’s WhatsApp messaging software, has led the unrelated biotech stock Signal Advance (ticker: SIGL) to rise from 60 cents to $ 38.70 a share. It has since fallen, but is still stunned, at $ 6.25.