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Valuations Reminiscent of Dot-Com Crash in 2000

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By travelershigh @ Shutterstock.com

Are you paying attention to what’s happening here? I’m talking about the tug-of-war between hedge funds and day traders with shares of GameStop.

“The rally has been fueled by investors encouraging each other on social media to pile into GameStop shares and options,” reports the WSJ. “The buying pressure has led money managers to switch out of substantial bets that the stock would fall, investors and analysts said. This resulted in a short squeeze, in which rising prices prompt investors to buy back shares they had sold short to cut their losses, pushing the stock higher still.”

From the WSJ:

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Elon Musk mentions chat app Signal and the next thing you know a company that has nothing to do with chat goes through the roof.

“In another instance, a tweet by Tesla Inc. Chief Executive Elon Musk about the messaging app Signal sparked a rally in the share price of unrelated biotechnology company Signal Advance Inc.

“This is the new day and age in which no one listens to the analysts: ‘Why bother, let’s just go out and buy it ourselves?’” said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. “It is a sign of high complacency,” Mr. Andersen added, saying that the lack of concern about valuations reminded him of the run-up to the dot-com crash in 2000.

Still, Mr. Andersen says he doesn’t think the moves in companies such as GameStop portends trouble for the broader market, saying the “herd mentality” is confined to relatively small stocks.

Action Line: Pay attention to what’s happening here. Make sure you’re not caught up in the herd. Investing isn’t supposed to be a game.

Read Part II here.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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