Ryan Jacob had a sensational track record when he started the Jacob Internet Fund in December 1999 at the age of 30. He had mounted the boom and then he endured the crash and has incredibly kept his business alive to this day.
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’ 90s’ are the hedge fund managers who are net short and bored,” Jacob said by phone from Los Angeles. “To say it’s like the late 90s – they have no idea. ”
For anyone without his experience, it may be forgivable.
The Nasdaq 100 index is at a record thenthe retail business is booming. The most expensive stocks – for most tech companies – have the highest premium ever over cheap stocks, by some metrics. Tesla Inc. trades over 800 times its profits as electric truckpeer, which made just $ 36,000 last quarter installing solar panels for its founder, is valued at $ 16 billion.
It may not be the dot-com bubble, as Jacob puts it. But that doesn’t necessarily mean it’s not a bubble at all.
Scott Barbee started the type of fund opposed to Jacob in 1998. Barbee is a value investor, a group that is arguably the most likely to invoke the dot-com bubble by warning about the current state of the markets.
“You have very high valuations on some adrenaline-like stocks where the fundamentals certainly look questionable,” said Barbee, president and founder of Aegis Financial Corp. in McLean, Virginia.
The great fear of the bears is that this remarkable stock rally will occur during a pandemic that has caused the worst economic crisis sinceGreat Depression.
The consensus is that the virus has fueled the dominance of big tech companies, and Barbee doesn’t disagree – her mother is one of the new converts to online grocery shopping, after all. His concern is that much of this growth has already been incorporated into Facebook Inc., Amazon.com Inc. and Apple Inc.
Key to understanding how companies like this can be worth around $ 2 trillion – an Apple figure says Paul Quinseein the lead this week – these are their profits.
The global head of equities at JPMorgan Asset Management has worked for the company since 1992 and recalls the dot-com era as a time when investors bet on expected profits, unlike the current environment.
“Today, at least for large companies, the long-term benefits are in,” New York-based Quinsee said. “I would be surprised if there was such a dramatic drop. But market leadership could change. “
The 2020 market is a very different place than it was two decades ago.
thethe number of U.S. domestic stocks has nearly halved from its 1998 peak to around 3,700 today, much of the declinedisappearance of micro-plugs. In the nine years up to 1998, there were 3,614initial public offerings, compared to just 2,093 in the same period until 2019.
At the height of the dot-com bubble, the medianthe age of a company that went public was five years. According to data compiled by Jay Ritter of the University of Florida, that’s double that number for most of the past decade.
This suggests that the kind of fledgling tech companies that imploded in the dot-com era now tend to stay private longer, and those that go public are generally more mature.
“VCs could stay longer and did not have to share with the public the growth of the steeper 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 that also mean that companies are more stable? The answer is usually yes. ”
As the modern day equivalent of dot-com learned to stay private, the growth stocks in the market started to look very different. The Russell 3000 Growth Index currently has a net debt to earnings ratio of just over 1. It was around 2.3 at the end of 1999.
And at the time, the debt was a heavier burden. Back then, companies found themselves in a hurryby removing “dot-com” from their names, the Federal Reserve was increasing rates. Now, borrowing costs are almost zero and should stay there for a while.
Cheap money generally favors technology stocks because it forces investors to seek returns by seeking long-term growth.
No envy for analysts
Cheaper and less debt, healthy profits, and more virus-based business. But all is not different on technology shares in 2020.
Predicting the outlook for companies when traditional valuation models don’t necessarily apply was a big challenge during the dot-com bubble, and remains today. In fact, putting a price on intangible assets such as research prowess has become more critical as companies spend ever larger sums on investments that are difficult to quantify.
“All these cool new businesses, but again how do you value them?” The buyer said. She remembers getting hate mail for not being enthusiastic enough about the actions in the bubble and then being sued for her high forecast when it all fell apart.
“I don’t envy the analyst on the sales side,” she said.
Even Jacob, who currently oversees around $ 100 million, is concerned that many large-cap tech stocks have run their course. It has reoriented its funds more towards small and mid caps.
It has seen smoother fluctuations in recent years, which most would consider a good thing. But Jacob can’t help but think his job has gotten a little more boring.
“As a public company investor in today’s environment, it’s a little frustrating,” he said. “You’re not going to duplicate what happened in the late 1990s, it was basically the dawn of the internet. “