Jan 24, 2023

The FAANGs Bite Back

Jan 24, 2023
Mark R. Gordon — JD, MPP, CFP®, CFA
Chief Investment Officer
In 2013, financial TV host Jim Cramer popularized the acronym “FANG” referring to four large tech companies: Facebook, Amazon, Netflix, and Google. He grouped them because they had experienced outsized market gains. In 2017, commenters added Apple to the group and referred to the five companies as “FAANG” or “the FAANGs.” Investors who concentrated their portfolios in FAANG stocks did very well.

Below is a chart showing the returns of the FAANG companies, from 2017 through 2021, compared with the total US stock market (the purple line). We can see that all five companies fared much better than the market, which “only” rose 128% over the five years. Even Facebook (now Meta), the “laggard” of the group, enjoyed supra-market returns:

One of the major contributing factors to the FAANGs rise was a one-in-a-lifetime pandemic that shut down major sectors of the global economy. In the past year, as we emerged from global lockdowns, the FAANG returns looked quite different:

As most of us are aware, 2022 was very bad for stocks: the US stock market is down about 19% as of this writing. Unfortunately, all the FAANG stocks have lost more value than the broad index. Apple has held its value best of the five, dropping 23%. The other four have dropped much more, with Netflix losing half its value and Meta shedding nearly two-thirds of its value. Although the long-term returns for these companies are solid, investors who piled into them based on the recent past have been treated to grievous losses.

When we first heard the term “FAANG” it brought back memories of two other faddish investment strategies: the Nifty Fifty and BRIC. The Nifty Fifty were a group of high-performing stocks in the 60s and 70s.¹ The BRIC were four high-flying emerging-market countries identified in the late 2000s: Brazil, Russia, India, and China.² Each of them became “no brainer” investment strategies based on their recent trailing returns. But investors likely didn’t fare well because their go-forward returns were significantly lower than the broad markets. The lesson, to our eye, is by the time a group of stocks does well enough to garner a name or nickname, it may be prudent to look elsewhere.

¹ See, e.g., https://en.wikipedia.org/wiki/Nifty_Fifty

² See., e.g., https://en.wikipedia.org/wiki/BRIC

Copyright © 2023 Wealth Architects, LLC

The information provided in this commentary is intended to be informative and not intended to be advice relative to any investment or portfolio offered through Wealth Architects.  The views expressed in this commentary reflect the opinion of the author based on data available as of the date this article [essay] was written and is subject to change without notice. This commentary is not a complete analysis of any sector, industry or security. Individual investors should consult with their financial advisor before implementing changes in their portfolio based on opinions expressed. The information provided in this commentary is not a solicitation for the investment management or other services offered by Wealth Architects.  References incorporated into the report [essay] from third party sources are as of the date specified and are believed to be reliable.  Wealth Architects is not responsible for errors in the third party data.