Late in market cycles brings about peaks in animal spirits. Investors are confident and have long forgotten about the previous major market decline. Caution and discipline are an afterthought as they risk their investment capital in places they normally would not. This is normal human behavior. As an aside, investors do just the opposite right after that major market decline. None of this should be no surprise, it is how we are wired.

The chart below shows the number of companies that went public last year but don’t make money came in at 81%, a new, all-time high. Companies don’t have to make money, look at Amazon how many years they went before making a dime. But those companies are the exception, and like hen’s teeth, very rare. The other thing to note is that the last time it was this high was … wait for it … 1999-2000, the top of the dot com bubble. Remember those times when any company with just a business plan and no earnings went public?  Most of them eventually followed the fate of the dodo, never to be seen again. Remember those times? Oh, the naiveite of investors back then, right? It’s so easy when looking backwards.  

 While it’s not 1999 and things are different (they are always different), this time the top culprit was biotech companies. This is not a surprise considering their business model and upfront need for research and product development funding. Second place, were technology companies, another set in the “not a surprise” bucket. Interestingly 'all other companies' came in at a record high. 57% of “the rest” don’t make money. 

Add this to a number of signs that are popping up we are late in this business/market cycle. All cycles eventually end. Unfortunately, we won’t know it has ended until we can see it in the rear view mirror. When you add that this to the fact the current cycle will likely go on for longer than we all expect there is nothing to do for now other than not lose sight of the past.  Oh yah, and have plan

 Those who cannot remember the past are condemned to repeat it - George Santayana (1905)