Expert perspective

Asset bubbles and where to find them

March 08, 2021

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Vanguard Global Chief Economist

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Are there asset bubbles out there now?

1 Goetzmann, William N., 2016. Bubble Investing: Learning from History. Working Paper No. 21693. Cambridge, Mass.: National Bureau of Economic Research.

2 S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index for December 2020. Accessed on January 26, 2021.

3 Based on data from CoinMarketCap as of February 22, 2021.

Low-quality growth has outperformed the broad market
The illustration shows cumulative returns for a low-quality U.S. growth stock portfolio accelerating in recent years compared with the broad U.S. equity market and even more so compared with a high-quality value stock portfolio.

4 Vanguard calculations using data from the website of Jay R. Ritter, University of Florida, warrington.ufl.edu excluding American Depositary Receipts, natural resource limited partnerships and trusts, closed-end funds, real estate investment trusts, special purpose acquisitions companies, banks and savings and loans, unit offers, penny stocks (with an offer price of less than $5 per share), and stocks not listed on the Nasdaq or the New York Stock Exchange for all IPOs.

Unprofitable IPOs are reminiscent of the dot-com bubble
The illustration shows an increase in recent years of the percentage of all companies, and of tech companies, with earnings per share below zero among companies offering shares publicly for the first time. The percentages have reached levels similar to those just before the dot-com bubble burst soon after the start of this century.

We don't expect the trends that defined the last decade to persist

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