The FAANG stocks have taken their investors on a wild ride.
Facebook (now Meta), Amazon, Apple, Netflix, and Google.
They outperformed the market from 2016 – 2021.
Investors who hated the S&P 500 index in the Lost Decade (2000 – 2009) and then fell in love with it as it was the top performer in the subsequent decade started thinking the FAANGs were the way to go (R.I.P. 2009 – 2020 Bull Market & Lessons Learned) – especially after the tear they want on during the COVID-19 stay at home days.
This year the story changed as some rolled over. Apple has hung in there, but the others have underperformed. Amazon, Meta, and Netflix have been hit the hardest.
Explaining the FAANG Struggles
Why has this happened?
- Don’t ignore the obvious: stock market weakness. The S&P 500 is down 13% year-to-date. We’re in the midst of our first stock market correction in two years. Stocks tend to move together.
- The FAANG stocks are very expensive, with investors willing to pay lofty valuations in exchange for their phenomenal growth rates. But growth works until it doesn’t, and when growth stocks show signs of disappointing growth, the market penalizes them. Netflix recently lost 200,000 subscribers. Amazon had its slowest quarterly growth rate since 2001. Apple’s iOS changes hurt Facebook’s business last year. Hell hath no fury like a scorned growth investor. Well, maybe not, but growth stocks can’t disappoint and be expected to do okay.
- Investment Winners Rotate…and they’re doing it again. Nothing stays on top forever.
So, what should investors do about it?
- Have a plan that isn’t based on these stocks immediately recovering. Things rarely go from expensive to fairly valued to expensive again. Microsoft stock, which has been added to the FAANG acronym by some to give us FAANGM, was dead money for almost fifteen years after the tech bubble burst in 2000.
- Understand the risk and reward of owning individual stocks. With individual stocks you are not only taking stock market risk, but specific company risk and you should have a differentiated view of these companies that is stronger than the investors you’re competing with in the market to succeed.
- Take the declines you’ve seen in Netflix, Amazon, and Meta as examples of how things can go wrong for growth stocks (or any stocks) and avoid concentrating in individual names.
- Diversify. A well-diversified portfolio will own these names without being over-exposed to them.
We got into this and a lot more in this latest bonus episode of the Wealthy Behavior Podcast, including which of the FAANG stocks concern us most and what else is driving the market these days.
In this bonus episode of Wealthy Behavior, Sammy talks to Heritage Financial’s Chief Investment Officer, Bob Weisse, about the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google). Most investors hold these stocks whether they realize it or not. Tune in to hear Bob’s thoughts on why the stocks are suffering right now, which of the FAANG stocks are expensive or cheap, what the longer-term outlook is like for these companies, and how investors should think about these popular stocks as part of a diversified portfolio.