The Stock Market’s Decline: Has It Jumped The Shark?

If you’ve never heard the term “jumped the shark,” it originated from the television show Happy Days, in which Fonzie, in full leather jacket, jumped over an electronic shark on water skis. It was that moment in TV history when viewers who caught on to the gimmick realized the show was just running out of steam.

Hence, “jumping the shark” signals a decline in quality… a gimmick… maybe even a sign of desperation.

Well, after reading a recent article in Bloomberg, I fear our markets have done just that.

A company called Ashley Madison (CAUTION: don’t look up on your work computer) which promotes adultery by charging men to contact married women for their “services,” is seeking to raise as much as $200 million for marketing and international expansion.

It turns out, adultery is a profitable business with 20% to 25% margins and a $1 billion private market value. Who knew.

Initially I thought: “Surely this is a joke.” But it was published on April 15, 2015. So, it wasn’t an April Fool’s joke.

However, it did remind me of an April Fool’s joke from many years ago.

In 1999, The Motley Fool, a website dedicated to personal finance and investing, published a piece online stating that it wanted to help a company called eMeringue launch its initial public offering (IPO). The business model? eMeringue manufactured — you guessed it — meringue pies. Then they sold them over the Internet.

Following publication, the phone lines were practically off the hook from readers wanting in on the IPO right from the start.

Think about this for a moment. Meringue pies sold on the Internet. It’s going public. Perfectly rational people tripping over themselves to get an allocation of IPO shares.

Seriously!?

Sure, it was just an April Fool’s joke. But, it fooled thousands of people.

The response was just like you’d see with any other IPO. When I started my career on Wall Street, each new IPO, no matter how stupid the idea, created a frenzy.

People with quality professional jobs — doctors and lawyers — threw away years of education and stable incomes to day-trade stocks. It wasn’t uncommon for freshman in college dorms to run venture capital firms, either.

We aren’t at the level of the 1998 to 2000 frenzy, in my opinion. But, this is the juiciest IPO market since. In fact, more money-losing companies are going public than at any time this century.

I believe people who look at whether investing in adultery is the right move will peel back the layers and come to a simple conclusion: It’s silly. Clearly the market has jumped the shark.

Or if not… they’ll catch on soon enough.

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John

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About Author

In 2007, John Del Vecchio managed a short only portfolio for Ranger Alternatives, L.P. which was later converted into the AdvisorShares Ranger Equity Bear ETF in 2011. Mr. Del Vecchio also launched an earnings quality index used for the Forensic Accounting ETF. He is the co-author of What's Behind the Numbers? A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio. Previously, he worked for renowned forensic accountant Dr. Howard Schilit, as well as short seller David Tice.