I have resisted the comparison between the dot com bubble and the current stock market, but the similarities have grown too much to ignore. Here are five areas where the parallels are strong, along with a caution about applying the bubble label to the wider market.
Exponential growth in the stock price of history
Everything connected to electric vehicles or clean energy has become ballistic in recent months. Tesla, the electric car maker, is the most obvious example, becoming the fifth largest American company by value after multiplying by eight 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 flood of IPO in the initial phase that delves into popular issues
Initial public offerings and cash deposits from special purpose acquisition companies, or SPACs, which are now used as an alternative, have boomed, attracting celebrity sponsors and allowing companies with no income, and yet less profits, enter the market. The Renaissance IPO, which tracks new listings, more than doubled last year, with by far the best performance since it began in 2009. Perhaps the most extreme was QuantumScape, partly owned. of Volkswagen, which hopes to market its experimental solid-state batteries. According to Refinitiv, it tripled in value to over $ 25 billion during December, before falling by more than half.
New investors who don’t know what they’re doing
Make no mistake, there are many smart and knowledgeable small investors. But stocks are changing again for the kind of amateur mistakes made by a beginner who hopes to earn a lot. One of the ones I wrote recently is to buy a stock solely because its stock price is low, which should be almost irrelevant, but that boosted performance in the first two weeks of this year.
Even more exciting is buying the wrong stocks, as happened with last year’s rush to Zoom Technologies, owner of the ZOOM ticker and not much else, instead of 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, caused Signal Advance (ticker: SIGL) unrelated biotech actions to jump from 60 cents a share to 38.70. $. It has fallen since then, but it’s still $ 6.25, baffling.