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 using the bubble label in the wider market.
Exponential growth in the price of history stock
Everything connected to electric vehicles or clean energy has gone ballistic in the last few months. The electric car manufacturer Tesla is the most obvious example and becomes the fifth largest American company by value after eight times last year. This year, it has so far added $ 134 billion to its market value, far more than the $ 78 billion it was worth in early 2020.
A flood of IPOs at an early stage that take advantage of the popular themes
Initial public tenders and cash shells from special purpose acquisition companies or SPACs, now used as an alternative, have been booming, attracting celebrity supporters and allowing companies with no revenue, let alone profits, 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 was QuantumScape, owned by Volkswagen, which hopes to commercialize its experimental solid state batteries . It tripled in value to more than $ 25 billion during December, according to Refinitiv, before falling by more than half.
New investors who do not know what they are doing
Do not get me wrong, there are plenty of smart and well-informed small investors. But stocks are swung around again by the kind of amateurishness committed by a beginner hoping to win big. One I wrote about recently is buying a stock solely because its stock price is low, which should be anything but irrelevant, but which drove the performance in the first few weeks of this year.
Even more uncomfortable is buying the wrong stock, as happened with last year̵