I have been resisting the comparison between the dot-com bubble and today’s stock market, but the similarities have become unignorable. There are five similarities here, plus a warning about applying foam labels to the wider market.
The exponential growth of stock prices
In the past few months, everything related to electric vehicles or clean energy has become rigid. Electric car manufacturer Tesla is the most obvious example. By value, it has become the fifth largest company in the United States and its market value has increased eightfold last year. So far this year, its market value has increased by US$134 billion, far exceeding its market value of US$78 billion at the beginning of 2020.
A large number of early IPOs entered popular topics
Nowadays, the initial public offerings and cash reserves of special purpose acquisition companies or SPACs as alternatives have been booming, attracting celebrity supporters and allowing companies that do not have any revenue, let alone profit, to enter the market. The Renaissance IPO index, which tracks the issuance of new shares, has more than doubled from last year and is the best performance since the start of 2009. Perhaps the most extreme is QuantumScape, which is partly owned by Volkswagen, hoping to commercialize its experimental solid-state batteries. According to data from Refinitiv, the company̵
New investors who don’t know what they are doing
Don’t get me wrong, there are many smart and knowledgeable small investors. However, due to the amateur mistakes made by beginners hoping to win big money, the stock has been hit again. A recent article I wrote was purely about buying stocks because of low stock prices, which was almost irrelevant, but it boosted performance in the first few weeks of this year.
What is even more disturbing is that buying the wrong stock, such as the company that rushed to acquire ZOOM technology last year, the owner of ZOOM stock, rather than many other companies, instead of the more well-known Zoom Video Communications (stock code ZM). This month, Elon Musk called for the use of Signal to replace Facebook’s WhatsApp messaging software, causing the share price of the unrelated biotech stock Signal Advance to jump from 60 cents per share to $38.70. It has been plummeting since then, but still remains at $6.25 incredibly.