I resisted the comparison between the dot-com bubble and today’s stock market, but the similarities became too strong to ignore. Here are five areas where parallels are strong, along with a warning about applying the bubble label to the wider market.
Exponential growth in the price of historical shares
Anything related to electric vehicles or clean energy has become ballistic in the last few months. Electric car maker Tesla is the most obvious example, becoming the fifth largest US company in value after growing eightfold last year. So far this year, it has added $ 134 billion to its market capitalization, much more than the $ 78 billion it cost in early 2020.
An early IPO flood using popular themes
The initial public offerings and cash shells of special purpose acquisition companies or SPACs, which are now used as an alternative, thrive, attract celebrity supporters and allow companies to join the market without any revenue, let alone profit. The renaissance IPO index, which tracks new listings, has more than doubled since last year and is the best performance since early 2009. Perhaps the most extreme is QuantumScape, part of Volkswagen̵
New investors who do not know what they are doing
Don’t get me wrong, there are a lot of smart and well-informed small investors. But stocks are again swapped by the kind of amateurish mistakes made by a beginner who hopes to win big. One I wrote about recently is buying a stock just because its share price is low, which should be almost irrelevant, but which has increased productivity in the first few weeks of this year.
It is even more painful to buy the wrong shares, as happened with last year’s invasion of Zoom Technologies, the owner of the ZOOM ticker and not much more than the more famous 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 unrelated biotech stock Signal Advance (ticker: SIGL), which jumped from 60 cents a share to $ 38.70. It has dropped since then, but is still $ 6.25, confusing.