Too Late to Invest in F.A.N.G. Stocks?
December 4, 2015 10:00am by Barry Ritholtz
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10 Friday AM Reads
FANG ate my BRIC.
So, collectively, their market caps will approach 6 trillion. Good luck with that.
would love to carry this chart forward to today re: CIMQ
Good advertisement, unless you ignore the five prior years of both series. Qualcomm before 1995 looks nothing like Google before 2012.
Also CIMQ were not the best performers of that five years. Nortel? Worldcom? Names unremembered because within 3 years they were disasters. CIMQ survived, so remain psychologically comfortable for an ad like this.
Amazon existed during CIMQ. To which era does it belong? It was on TV news in the 90’s, when the show 60 minutes was popular.
Are you saying another Tech bubble is coming Barry?
So I guess the question here is, does it make sense to compare technology companies that via “first mover” status in significant-but-different technological trends came to dominate their markets (all different markets, each and every one), even though they are being compared across time frames representing completely different situations?
Consider:
• the 1995-2000 5-year span was during a time of decreasing rates and monetary stimulus, in a global economy that was firing on more than one cylinder
• the 2012-2015 3-year span was during a time of near-zero rates, and weak economic conditions (i.e., little expansion of the economic pie), with the global economy firing on basically 1 or 2 cylinders
Anyone can match up charts of stocks if they pick and choose the right narrow spans of time. The random fluctuations of stocks pretty much guarantee that. Try matching up track records over 20-30 years, and the task becomes more difficult.
The question is, what is the narrative that gives substance to the picture?
If you look at a long-term chert of the NASDAQ composite — say, from 1995 to 2015, you will observe that between dips in that index, it moves up pretty steadily until the next recession, and that the climb from 1995 to the peak of the dot-com bubble in 2000 was a steeper climb than the climb from 2003 to 2007, or the climb from 2009 to 2015. These “horsemen” can be considered proxy’s for the NASDAQ composite, because a lot of the NASDAQ companies had their fortunes linked, directly or indirectly to these “horsemen”.
Looking at the duration of these periods of expansion, I would say that the F.A.N.G. expansion is closer to a top in this round of expansions (but with of a sample of three, the confidence level cannot be high). I think that’s about all one can conclude. It makes sense that the F.A.N.G. expansion is weaker than the C.I.M.Q., because the global economic pie has been expanding pretty weakly over this chunk of history. Companies cannot expand faster than the markets they serve for very long, because they will become monopolies and be constrained by the very markets that made them.
Unless they are a company like AAPL, that looks for new markets to enter on a continuing basis — and even AAPL gets pulled along inordinately by their home run (iPhone), although they still manage to crank out about 40% of their revenue from other product lines.
Facebook still consists of exploiting their social network, Google still gets almost all its revenue from advertising, Netflix gets all of its revenue from media rentals, and Amazon is the only one of the F.A.N.G. that has successfully branched out, from retailing into cloud computing. The rest remain one-trick ponies.
If we look back at the C.I.M.Q. group, MSFT managed a successful operating system, and a wildly successful commercial software suite, was eventually successful with a video game console. CSCO grew along with the internet, but failed to successfully make the leap to mobile computing, and has been pretty much flatlined since the dot-com-bomb. Intel has a lot in common with Cisco, also having failed to get on the mobile computing bandwagon. Qualcomm rode the mobile computing horse well for a time, but with Samsung taking their business in-house, and Apple increasingly doing the same, Qualcomm’s prospects have been curtailed from most of the semiconductor content in most of the smartphones to the wireless communication parts in some of them.
I’m not sure one can derive any over-arching life lessons from the experiences of these groups of winners, other than to note that markets swell in significance and dwindle away, and if companies can smoothly move from one opportunity to the next, they can leverage their past financial successes. And if they cannot, well, they will always have these fine charts to look back on … the Good Old Days.
I’d like to see these relativized against the NASDAQ, but I suspect it won’t look terribly different.
FOMO ( Fear of Missing Out effect ) and “regret from not having participated” happens occasionally with tech stocks and can seduce a growth investor into myopic individual stock “overweight”, frequently at the wrong time in the economic cycle. Fortunately, with the advent of ETFs, an investor can avoid these pitfalls. Over the last 25 years, the managers of the Nasdaq 100 and further, the QQQ ( the ETF replicating the Nasdaq 100 ) have done a wonderful job of maintaining popular and high consistent growth potential constituents in the index, making it one of the top decile index investments. When used with a robust, low turnover tactical asset allocation process, the QQQ has provided superior risk mitigated alpha premium. In this way, an investor with a long term investment objectives, can invest in 100 excellent companies and geometrically compound and accumulate assets versus missing out on / hoping to catch the handful of “stars that have already risen”.
I don’t think the times or the companies are comparable. Facebook and Netflix are comparatively, more esoteric than Cisco, Microsoft, Intel and Qualcomm. Especially in their respective eras of growth shown in that chart. Amazon and Google are less esoteric than Facebook and Netflix nonetheless, they are still retail and not as structurally all encompassing as C., M., I. and Q. were between ’95 and ’00. The emotions and expectations were also much, much higher between ’95 and ’00. Heck, F.A.N.G. would have done much better during the ’95 to ’00 timeframe than any 5 year timeframe they have been or will be in. ’95 to ’00 was a unique, once in a century period.