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

An influx of IPOs in the early stages using the popular themes

Initial public offerings and the cash shells of specialty procurement companies, or SPACs, now used as an alternative, were booming, attracting celebrity fans and allowing companies with no revenue, let alone profit, to enter the market. The Renaissance IPO index, which follows new listings, more than doubled last year, and is by far the best performance since its inception in 2009. QuantumScape was perhaps the most extreme.,

QS -0.64%

part of Volkswagen, which hopes to commercialize its experimental solid-state batteries. According to Refinitiv, it tripled in value to more than $ 25 billion in December before falling by more than half.

New investors who do not know what they are doing

Do not get me wrong, there are many smart and well-informed small investors. But the stocks are being turned around again by the kind of amateurish mistakes a beginner makes in hoping to win. One that I wrote about recently is buying a stock simply because the stock price is low, which should be anything but irrelevant, but which caused the performance to rise in the first few weeks of this year.

Even more disturbing is buying the wrong shares, as with the rush of Zoom Technologies last year, owner of the tick ZOOM and not much else, rather than the better known Zoom Video Communications ZM. 0.15%

(ticker ZM). Elon Musk’s call to use Signal, an alternative to Facebook, this monthsay

FB 0.60%

WhatsApp messaging software, led to the unrelated biotechnology stock Signal Advance SIGL -4.73%

(ticker: SIGL) which jumps from 60 cents per share to $ 38.70. It has plunged since then, but is still surprising at $ 6.25.

These kinds of mistakes have also made headlines in the dot-com bubble, as many newcomers have traded on stock boards based on rumors.

Old economy stocks rise with popular theme

Detroit stalwart General Motors GM 0.58%

a Ford F -0.09%

both managed to sprinkle the magic of electric cars over themselves this year along with South Korean Hyundai. Shares in the top three have gained about a third this year, with GM and Ford among the top performers in the S&P 500.

In 1998 and 1999, just adding ‘.com’ to the company’s name resulted in an average profit of 74% over the next ten days, according to research by academics from Purdue University in 2001. Apart from a few small stocks trying to capitalize on bitcoin mania, the only notable example of this so far is the healthcare division listed in Hong Kong, one of China’s largest real estate developers, which changed its name to China Evergrande New Energy Vehicle Group 708 -1.97%

last summer. Its shares have soared, and it plans to launch electric cars this year. I mean, GM used to make refrigerators, and Toyota started making fabrics, making sure apartments and electric cars.

Early investors who sold the shares were sold out

Many of those who used to be investors in renewable energy or electric cars have reaped some of all the benefits of growing into other cheaper areas, even if they believe in the underlying theme.

James Anderson, partner and investment manager at Edinburgh’s fund manager Baillie Gifford, was an early investor in Tesla and is still one of the largest shareholders even after its sale. He is concerned about the wild demand for IPOs and SPACs in anything related to batteries, solar and electric vehicles. “Is it rational? I don’t really think so, “he said.

David Older, head of shares at French fund manager Carmignac, has sold Chinese shares in electric cars that have risen in favor of established carmakers he thinks will succeed in the electric car business.

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

Even if you agree that the glossy stocks of today are too frothy, there is still a question as to whether they extend to the broader market. There is a good reason not to think, at least not as a real bubble:

The Federal Reserve has its back to the market

Treasury yields are very 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 like Apple AAPL 1.61%

of Facebook. Compared to a 10-year bond, US equities do not look expensive.

Investors can, of course, be wrong about future cash flows (antitrust, people!) Or about the prospects for bond yields. Both can cause stocks to fall, perhaps a lot. But falling because the fundamental factors have changed is not the same as falling because a bubble burst, which usually leads to prices falling faster and faster.

Write to James Mackintosh by [email protected]