Are Today’s Billion-Dollar ‘Unicorns’ Comparable To Jim Cramer’s Year 2000 'New World' Winners?

There is an old saying that history never repeats but often rhymes.

Case in point. Fifteen years ago, there was Jim Cramer, the founder of TheStreet.com, hedge fund manager and frequent guest commentator on CNBC-TV, speaking to an audience in New York.

It was on a Tuesday, February 29, in the Leap Year 2000, and just 6 weeks prior to the Internet Bubble NASDAQ record market top. What followed in the short years afterward was NASDAQ’s notorious 78% decline over the next 28 months.

His speech topic and subsequent article posted on TheStreet.com was titled ‘Jim Cramer’s ‘Winners Of The New World’. These were Cramer’s must-own stock portfolio names of the irrational exuberance days of the Internet Bubble, or ‘New Paradigm’ era, a term describing the market valuation insanity of the time coined by none other than the former Federal Reserve Board chair Alan Greenspan.

Here are a few excerpts of what Jim Cramer said that day as it related to his Top Ten ‘must own’ stocks going forward:

You want my top 10 stocks for who is going to make it in the New World?   We are buying some of every one of these this morning as I give this speech.

We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over — and it is very far from ending…

Most of these companies don’t even have earnings per share, so we won’t have to be constrained by that methodology for quarters to come… We don’t use price-to-earnings multiples anymore at Cramer Berkowitz (Cramer’s hedge fund). If we talk about price-to-book, we have already gone astray. If we use any of what Graham and Dodd teach us, we wouldn’t have a dime under management.’

A link to the February 2000 article can be found at TheStreet.com here .


Listed below were Jim Cramer’s Top 10 Stock Picks that day, along with a rear-view mirror as to how they performed in the short months and years afterward:

 

Please understand that Jim Cramer is a very smart man. I personally have great respect for his financial wisdom and trading acumen. In fact, he garners the respect of many Fortune 500 CEOs who often meet up with him in New York both on and off his popular long-running television CNBC-TV show, Mad Money.

However, as you can see from the charts above and below, even a Wall Street guru like Jim Cramer can get caught up in dangerous public investment ‘group-think’ at precisely the wrong time.

Fast-forward to today, June 22, 2015.

After 15 long and tumultuous years, the NASDAQ stock market has finally eclipsed the all-time intraday high water mark of 5132. At the same time, and for the first time in history, there are currently 111 ‘unicorns‘, or private companies valued at more than $1Billion. A subset of that select group includes now 11 companies valued at more than $10Billion.

Note in the chart below that the exponential growth in the number of Billion-Dollar ‘Unicorns’ over the last few years is eerily similar to the exponential growth in NASDAQ from 1997 to the March 2000 high.

 

Two of my favorite investment quotations come to mind for late market cycle times like the present:

“In investing, what is comfortable is rarely profitable.” -Robert Arnott

“Doing what everyone else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.” – Phil Fisher

Are today’s Billion-Dollar ‘Unicorns’ comparable to Jim Cramer’s Year 2000 ‘New World Winners’?  If so, a major market correction may soon be in the offing. Prudent investors should consider stepping out of their own comfort zones to both protect significant wealth and capitalize on the coming ‘risk-off’ cycle ahead.

 

Kirk D. Bostrom
Chief Portfolio Manager
Strategic Preservation Partners LP

http://sppfund.com

Disclaimer: The views expressed are the views of Kirk Bostrom and are subject to change at any time based on market and other conditions. This material is for informational purposes only, and is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. The opinions expressed herein represent the current, good faith views of the author at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, the author does not guarantee the accuracy, adequacy or completeness of such information.

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