If it looks like a bubble and swims like a bubble …

A flood of early-stage IPOs tapping into popular themes

The initial public offerings and cash shells of Special Purpose Acquisition Companies, or SPACs, now used as an alternative, were in full swing, attracting famous backers and allowing companies with no income, let alone profit. , to join the market. The Renaissance IPO Index, which tracks new listings, more than doubled last year, by far the best performance since its launch in 2009. QuantumScape is perhaps the most extreme.,

QS -0.64%

partly owned by Volkswagen, which hopes to commercialize its experimental solid-state batteries. It tripled in value to more than $ 25 billion in December, according to Refinitiv, 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 out there. But the actions are again swayed by the kind of amateur mistakes made by a newbie who hopes to win big. I recently talked about buying a stock just because its price is low, which shouldn’t be relevant, but which boosted performance in the first two weeks of this year.

Even more excruciating is buying the wrong title, as happened with last year’s rush on Zoom Technologies, owner of the ticker ZOOM and not much else, rather than the more well-known Zoom Video Communications ZM 0.15%

(symbol ZM). Elon Musk’s call this month to use Signal, an alternative to Facebookof

FB 0.60%

WhatsApp Messaging Software, Led to Unrelated Biotech Stock Signal Advance SIGL -4.73%

(ticker: SIGL) going from 60 cents per share to $ 38.70. It has since dived but is still baffling at $ 6.25.

These kinds of mistakes also made headlines in the dot-com bubble, as many newcomers rushed to trade stocks based on rumors on message boards.

Old economy stocks soar as they tap into popular theme

The Pillars of Detroit General Motors GM 0.58%

and Ford F -0.09%

both managed to sprinkle the magic dust of electric motors on themselves this year, alongside Hyundai of South Korea. Shares of the three have gained about a third this year, and GM and Ford are among the top performers in the S&P 500.

In 1998 and 1999, simply adding “.com” to a company’s name led to average earnings of 74% over the next 10 days, according to a study by academics at Purdue University in 2001. Aside from a few tiny stocks trying to cash in on the bitcoin mania, the only notable example of this to date is the Hong Kong-listed healthcare division of one of China’s biggest real estate developers, which has changed. its name for China Evergrande New Energy Vehicle Group 708 -1.97%

last summer. Its shares have skyrocketed and plans to launch electric cars this year. I mean, GM was making refrigerators, and Toyota started making looms, so of course, building apartments and electric cars.

The first investors who shot up stocks by selling

Many of those who were the first investors in renewables or electric cars have cashed in all or part of their earnings to move on to other, cheaper areas offering growth, even if they continue to believe in the theme under. -jacent.

James Anderson, partner and investment manager at Edinburgh fund manager Baillie Gifford was an early investor in Tesla and, even after selling a lot, he is still one of the biggest shareholders. He is concerned about the high demand for IPOs and PSPC in everything connected to batteries, solar and electric vehicles. “Is it rational? I don’t really think so, ”he says.

David Older, head of equities at French fund manager Carmignac, sold Chinese electric car stocks that have skyrocketed in favor of established carmakers he says will be successful in the electric car business.

“There seems to be an irrational exuberance, especially with companies that don’t have products today,” he said.

Even if you agree that today’s glamorous stocks are too frothy, the question still arises as to whether this extends to the wider market. There’s a good reason to think not, at least not like a real bubble:

The Federal Reserve supports the market

Yields on treasury bills are extremely low and the Fed has promised not to raise interest rates. This justifies higher prices for stocks with reliable long-term cash flow, including big tech stocks such as Apple AAPL. 1.61%

or Facebook. Compared to a 10-year bond, US stocks don’t seem expensive.

Of course, investors can be wrong either about future cash flows (antitrust, folks!) Or about the outlook for bond yields. Either one could cause inventory to drop, maybe a lot. But falling because the fundamentals have changed is not the same as falling because a bubble has burst, which usually causes prices to fall faster and faster.

Write to James Mackintosh at [email protected]