Many people on Wall Street can tell stories of the dot-com bubble. Not many of them launched a $ 150 million tech-focused asset management company about three months before it burst.
Ryan Jacob had a sensational track record when he joined the Jacob Internet Fund in December 1999 at the age of 30. He had been driving the driveway, then he destroyed the accident and kept his business incredibly alive so far.
All of this makes him as qualified as anyone to judge today’s tech rally.
“The only people who say, ‘Yeah, it’s like the 1990s’ are hedge fund managers who are not short-sighted and annoying,” Jacob said by phone from Los Angeles. “To say it’s like the late 1990s – they have no idea.”
For anyone without his experience, perhaps it is forgivable.
The Nasdaq 100 index is at a record time retail is booming. The most expensive stocks – mostly technology companies – are at the steepest premium ever versus cheap stocks, by some measures. Tesla Inc. is trading at more than 800 times revenue as an electric truck peer, who made just $ 36,000 last year by installing solar panels for its founder, is valued at $ 16 billion.
This may not be the dot-com bubble, as Jacob says. But that does not necessarily mean that it is not a bubble at all.
Adrenaline rush
Scott Barbee started the opposite kind of fund for Jacob in 1998. Barbee is a value investor, a group that will probably most likely call up the dot-com bubble when it warns about the current state of markets.
“You have very high valuations on certain adrenaline – type stocks, where fundamentals certainly doubt it,” said Barbee, president and founder of Aegis Financial Corp. in McLean, Virginia.
The big fear for bears is that this remarkable stock rally will take place during a pandemic that has the worst economic impact since the Great Depression.
The consensus is that the virus has driven the dominance of big tech companies, and Barbee disagrees – his mother is among the new converts to online shopping. His concern is that much of this growth is already in the prices in the likes of Facebook Inc., Amazon.com Inc. and Apple Inc.
For Paul Quinsee, the key to understanding how companies like this can be worth in the region of $ 2 trillion – a figure Apple above this week – is her win.
The global head of equities at JPMorgan Asset Management has been with the company since 1992, recalling the dot-com era as a period when investors bet on hope for profit, as opposed to the current environment.
“Today, at least for the big companies, the profits are coming in the long run,” said Quinsee of New York. ‘I would be surprised if there was a similarly spectacular decline. But the market leadership could change. “
Big business
The 2020 market is a very different place than it was two decades ago.
De Native American stocks have nearly halved from their 1998 high to about 3,700 today, with much of the decline driven by disappear microcaps. In the nine years through 1998, there were 3,614 initial public offerings, compared to just 2,093 in the same period through 2019.
Fewer new animals
The number of public debuts has been far below the dot-com era
Source: Professor Jay Ritter at the University of Florida
At the height of the dot-com bubble, the median age of a company that went public was five years old. It’s been double that for most of the last decade, according to data compiled by Jay Ritter at the University of Florida.
This suggests that the kind of new technology companies that are imploding in the dot-com era are now staying private longer, and those that go public are usually more mature.
“The VCs could stay in longer and did not have to share growth of the steepest part of the curve with the public,” said Lise Buyer, who now advises tech companies on IPOs, but analyzed them at Credit Suisse First Boston during the dot -com boom. “Does it also mean that companies are more stable? The answer is generally yes. ”
As the modern equivalent of dot-coms learned to stay private, growth stocks in the market began to look very different. The Russell 3000 Growth Index currently has a net debt-to-equity ratio of just above 1. It was around 2.3 at the end of 1999.
And back then, debt was a bigger burden. Around the time, companies found themselves in a hurry removing “dot-com” from their names, the Federal Reserve increased rates. Now borrowing costs are almost zero and look likely to stay there for a while.
Cheap money normally favors tech stocks because it forces investors to seek returns by chasing long-term growth.
No envy for analysts
Cheaper debt and less of it, healthy profits, and a virus-based impetus for business. But not everything is different about technology stocks in 2020.
Predicting the prospects for companies as traditional valuation models do not necessarily apply was a huge challenge during the dot-com bubble, and remains so today. If anything, a price on intangible assets such as competency for research has become more critical as companies spend ever-increasing sums on hard-to-quantify investments.
“All these interesting new businesses, but again, do you appreciate them?” Buyer said. She reminds herself to get hate mail because she was not enthusiastic enough about stocks in the bubble, and is later charged with her airy forecasts when everything collapses.
“I do not envy the sales side analyst,” she said.
Even Jacob, who currently oversees over $ 100 million, worries that many of the big-cap tech stocks have run their course. He has moved more of his fund to small and medium-sized caps.
It has seen milder swings in recent years, which most would consider a good thing. But Jacob can’t help but notice that his job has just gotten a little deeper.
“As a public business investor in today’s environment, it’s a little frustrating,” he said. “You will not repeat what happened in the late 1990s, it was basically the dove of the internet.”
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