I-P-Oh No …

Are stocks in a bubble?

A strong stock market, low interest rates, and confidence in the ability of innovative companies to generate sales are heating up the market for initial public offerings. Especially tech stocks. When I read about IPOs for Candy Crush, the addictive mobile app, or Godaddy, the web-site registration firm best known for its edgy Super Bowl ads, I start to wonder.

There were 25 tech IPOs in the fourth quarter of 2013, compared with 8 in the fourth quarter of 2012. Many investors remember the heady days of 1998 and ‘99, when someone with an idea and not much more would go public. Back then it was anything dot-com related; now it’s cloud-based technology that’s in the spotlight—cloud-based payrolls, cloud-based call-centers; cloud-based trade-management.

Is it different this time? Back then, the average listing firm had been in existence only 4.5 years; now they’ve been around 13 years before they go public. At that time they often went public to raise primary capital; now they list so they can offer stock options to lure engineering staff. And there were 457 IPOs in 1999—more than twice as many as last year.

The witches in Macbeth chanted: “Double, double, toil and trouble, fire burn and cauldron bubble” as they brewed up their potion of disaster. Let’s hope the market isn’t brewing of a cauldron of trouble for investors now.

Douglas R. Tengdin, CFA

Chief Investment Officer

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