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It is important to contrast large technology companies with near-dominant market positions and real revenues with large technology companies that occupy a more speculative corner of the market.
In the frothy market environment that characterized 2021, reminiscent of the dot-com bubble, many low-profit or unprofitable high-tech companies, or companies pretending to be high-tech companies, went public with huge market capitalizations. debuted on the market.
Many of these new stocks are brought to market through special purpose acquisition companies (SPACs), also known as “blank check” companies, which, among other things, allow new public offerings to bypass much of the traditional IPO vetting process. Ta. 2021 also saw a stratospheric rise in speculative areas such as cryptocurrencies and “meme” stocks.
Let's review the three areas referenced above.
During the market turmoil of 2021, I wrote in this space that I was saving the front page of a magazine's business section. wall street journal It's titled “Attack of SPACs,” and he said it would be a fun artifact to get one's hands on someday. You don't hear much about SPACs these days. SPACs and newly issued ETFs peaked at around $32 in early 2021 and are currently trading at around $23, effectively an all-time low.
Meanwhile, cryptocurrencies have been in the headlines a lot lately. This is primarily due to the SEC's approval of Bitcoin ETFs and the related all-time high for the largest cryptocurrency. But second-tier coins like Dogecoin, which was literally created as a joke, are also gaining traction. Whether it's cryptocurrencies or not, past bubbles have been most evident in the second layer. While the recent big rally in Dogecoin and others is concerning, it's worth pointing out that Dogecoin in particular is currently trading at 80% from its 2021 high.
Let's take a quick look at GameStop and AMC Entertainment Holdings, the darlings of the meme stock boom. GME stock has lost most of its bubble gains and is down more than 80% from its closing high in early 2021. AMC is faring even worse, wiping out all of the meme stock's gains and then some, with its stock price down 99%. High prices in mid-2021.
Additionally, a widely accepted agent for speculative stock investing is the Ark Innovation ETF, whose manager, Cathie Wood, was featured in a segment of the financial press just two years ago by Peter Lynch. He was compared to Mr. Although the fund is up from its lows a year ago, it is almost back to where it was before the post-pandemic bubble that saw its stock price more than triple from early 2020 to early 2021 began to inflate. There is.
The late Charlie Munger said at Berkshire Hathaway's 2022 shareholder meeting, “God gives us justice,” referring to the plummeting stock price of Robinhood (a retail brokerage similar to the one owned by Ark). he said.
Returning to large, dominant technology companies, in a market economy superior profitability (or the prospect of it) typically leads to increased competition and returns to more “normal” levels of profits. If competition does not function properly and is pushed to extremes, dominant companies may be subject to strict regulations based on antitrust laws or even be disbanded. Currently, such risks may still be underestimated by big technology companies. The excitement surrounding generative AI could also create a bubble. However, at this time I am not yet willing to support either lawsuit.
Key takeaway: A market, market segment, or individual stock may not be worth investing in, but it does not represent a bubble.
Chas Craig is president of Meliora Capital (www.melcapital.com) in Tulsa.
