The FAANG (Facebook, Amazon, Apple, Netflix, and Google) stocks have been on everyone’s investment radar for years. How could you ignore their performance when the hype was everywhere. What are these major tech stocks looking like today? How easy is it to value or overvalue stocks? Why choose value stocks versus growth? Fear of Missing Out (FOMO) is ever apparent in the investment world, but here’s why you should give it a miss.
Transcription
Rob (00:00):
Hello, this is Rob and Mike from the McClelland Financial Group of Assante Capital Management, and this is Think Smart with TMFG. Today on Think Smart with TMFG, Mike and I will be discussing jumping on the bandwagon. Mike, it is the time right now, if you’re a Toronto sports fan, to jump on the bandwagon.
Mike (00:25):
The Stanley cup!
Rob (00:27):
The Stanley Cup, we just had our first 60 goal score.
Mike (00:31):
Yep.
Rob (00:31):
And the playoffs are about to begin, and who knows? We could end up with a Stanley Cup parade in this city.
Mike (00:38):
I’m there. Raptors are going to come back.
Rob (00:40):
The Raptors could be the first team in NBA history to come back, and who knows, maybe by the time this podcast comes out, we still may be playing game seven.
Mike (00:49):
Yep.
Rob (00:50):
And then we’ve got the Blue Jays that look like they could be, well, a lot of experts are picking them to win the World Series, so it is time to jump on the bandwagon.
Mike (00:59):
Yeah, you’ve always been an early adapter, we’ve called you that! I guess there’s a fine line between early adaptation and jumping on the bandwagon, is there?
Rob (01:08):
So I thought it might be interesting to talk about some of the bandwagon jumpers that have happened recently in the investment world, and I’ve got a couple that I thought I would share with our audience today. The main one is the FAANG stocks, so let’s talk a little bit about the FAANG stocks. So Mike, who are the FAANG stocks?
Mike (01:30):
It’s Facebook, Apple, Amazon, Netflix, and Google.
Rob (01:34):
They were put together a number of years ago as a grouping because they were so successful. And these companies were growing very fast, the stock was going through the roof, the media loved it, they loved the story, they got all excited. You couldn’t turn on your television station and hear anything financial without one of these five companies being on the list. And you know what? They delivered. They delivered phenomenal returns through investors, and those companies grew dramatically. What do the FAANGs look like today?
Mike (02:11):
Not as great, they’ve lost a little bit of their bite, we’ll say. We find some of them have held up reasonably well. One of the problem with FAANGs is these companies got bundled together more for their performance over a period of time rather than what they actually do, because some of them don’t belong in the same category, like Netflix doesn’t belong with Amazon or Google. I mean, Amazon has a video service, but…
Rob (02:34):
But you needed the N in that word.
Mike (02:36):
You needed the N, so it had to be in there. So they were more related by their relative outperformance of the rest of stocks in the marketplace than anything else. And we saw between Facebook and Netflix, they’ve just been clobbered over the last period just recently with Netflix. And I think that one seemed obvious with all the competition that was there, and we saw Facebook get hit pretty badly a few months ago, too.
Rob (02:56):
So let’s look at some of these numbers because they’re just mind-boggling.
Rob (03:01):
So in 2021, just last year, Facebook hit a market value of $1 trillion dollars and then they decided to change their name to Meta, and the company is now worth a little above $500 billion. Now $500 billion is nothing to sneeze at, that’s still a huge valuation, but it’s down 47% over the last 12 months. Amazon, brilliant company, deliver goods to me all the time, I use Amazon once or twice a week for sure, down 16%, just even year to date. Apple, great product again, down 15% year to date.
Rob (03:43):
But those are the good ones. What about Netflix?
Mike (03:47):
Down 60% year to date.
Rob (03:49):
Netflix just came out and announced they’ve lost 2 million subscribers. So people are having to go back to work, inflation’s increasing, so people are looking at, how can I cut my expenses? And Netflix had just raised their prices and people are bailing.
Rob (04:04):
And then you’ve got Google, great company, does a ton of advertising. It’s one of the biggest players in the advertising world, today in the world, it’s down 25%.
Rob (04:16):
And put those numbers together. The Dow is only down 9% year to date, so you can see how big those drops are.
Mike (04:24):
Is it sort of strange that two of the five FAANG stocks changed their name? Facebook went to Meta, Google went to Alphabet. It’s funny, you’d think if you had such a great name…
Rob (04:36):
Why would you change it?
Mike (04:38):
I was a bit lost on why that was happening.
Rob (04:40):
You can change your strategy, just don’t change your name.
Mike (04:42):
Like Facebook, what’s wrong with Facebook? What’s wrong with Google? I don’t know.
Rob (04:48):
Yeah. Like Google, we think of it as a verb, right?
Mike (04:51):
Yeah.
Rob (04:51):
Like it’s, “I’m going to Google something.”
Rob (04:53):
So what are some other bandwagon jumpers? I mean, we talked about this on a couple of podcasts. Marijuana stocks, what was the headline this week? They’re just laid off another 10% of their workforce.
Mike (05:06):
Yeah.
Rob (05:07):
This is happening.
Mike (05:08):
It’s frustrating because you can see this happening, you see overvaluations are out there. Even when we look at a company like Tesla, we all wonder what’s going to happen with this. None of us understand it. You drive Tesla, it’s a great company.
Rob (05:24):
I love the car.
Mike (05:24):
Great car, great everything, but I look at the valuations of the Tesla, and I look at a company like Ford is traded under four times earnings, which is just ridiculous. And Tesla is trading at astronomical price-to-earning ratios and continues to have that interest in it.
Rob (05:41):
So in 2021, the big bandwagon was Bitcoin and cryptocurrency.
Mike (05:47):
Yep.
Rob (05:48):
So how’s that doing year to date? I can tell you how. We’ve talked about my $1,500 that I’ve got in the market, it’s down about a third.
Mike (05:56):
Yep.
Rob (05:56):
Last time I checked, Bitcoin was down 20% year to date.
Mike (06:00):
Yep.
Rob (06:00):
About 40% over the last 12 months. Coinbase is down 50%. These things are just getting pummeled. And I understand, losing 30, 40, 50% is not a lot of fun. What do you do then? Should you buy more? What are your thoughts on that, should you get back on the bandwagon?
Mike (06:20):
It’s very hard when you deal with an asset like that, because you don’t know what the actual valuation is. I’m sort of old school, I need a price-to-earning ratio to judge anything. If I don’t have a P/E ratio on anything, I can’t give you a clue what it’s worth. I have trouble with new stocks because they say, what’s this company worth? Well, unless you can tell me what it’s earning, it’s pretty hard to figure out what a company’s worth, unless you have some idea what it can earn.
Rob (06:44):
There is no E, because there’s no profit to some of these companies.
Mike (06:47):
Yeah. Without that E, I don’t understand. And I’m not saying it’s not going to be somewhere in the future, it does have a place in the future, it’s just very difficult for anyone to price it.
Rob (06:58):
What was interesting is, I was listening to some research on a podcast recently and they were talking about as investors age, they move away from growth stocks and move to value stocks. And so when you look at an investor who may be over 50 years of age versus someone who’s under 50 years of age, there’s a big difference in what they own in their portfolio. And when you’re younger, it’s easy to get excited, it’s easy to hop on the bandwagon. And I thought, what happens is the stock starts to go up, and then the media decides to jump on it, there’s a good news story there. The stocks going up, business is growing. It’s an exciting new technology. And who starts to buy it?
Mike (07:46):
Yeah. All the young people.
Rob (07:48):
All the young people. Why?
Mike (07:49):
Because it’s exciting, and plus they have more risk tolerance too, they can afford to take those risks. There’s one thing that’s interesting, when you look at that study, the one good thing is humanity does learn lessons over time, because as people get older, they can only burn so many times on the growth scenario. You know, you saw it in ’98, ’99, when everyone lost on the .com and they lost in 2007 and eventually it gets to now and they see it coming again, although guys are in their sixties going, “I’ve seen this before you guys go have fun,-”
Rob (08:17):
Go have fun.
Mike (08:18):
“-And we’ll see you at the end of the day.”
Rob (08:20):
I think what makes it even worse today is social media. Social media plays a major role in bandwagon jumping. If all you’re hearing is about how great these investments are, it’s hard not to get excited about them and want to put your hard earned money into them.
Mike (08:39):
And we’ve even termed it, it’s FOMO, fear of missing out. That’s the biggest thing. Everyone is so concerned about missing out on that next big, make it rich quick scam that’s out there. Their biggest fear is, everyone else is making money and I’m not, I want in on this party right away, and it costs people a lot of capital.
Rob (08:58):
What’s interesting to me is it’s not just amateurs, there are professional money managers that use this as a strategy.
Rob (09:07):
So in 2021 and 2020, we heard about this fund and the manager’s name was Kathy Wood, it was called the Arc Innovation Fund. What was always interesting, I used to have an old girlfriend that I dated for a long time and she had the same name. Different people, but they had the same name. So I was always sort of intrigued by this fund. Year to date, just year to date, and here we are, it’s only the end of April, that fund is down 50%, year to date. But everyone was jumping on the Kathy Wood bandwagon back in 2020 and 2021, because she had delivered stellar returns with some of these FAANG stocks.
Mike (09:47):
Yep.
Rob (09:47):
So, the lesson of the day, maybe you want to jump on the Leaf bandwagon, maybe you want to jump on that Blue Jay bandwagon.
Mike (09:55):
I’ve been on the Leaf bandwagon a few times in my life, it’s never turned out that well!
Rob (09:59):
I keep telling my son, beware of the Leafs, they’ll disappoint you. They will break your heart.
Rob (10:05):
That brings us to the end of another week, thank you for joining us. This is Rob and Mike with Think Smart from the McClelland Financial Group of Assante Capital Management, reminding you to live the life that makes you happy.
Assante Capital Management (10:41):
You’ve been listening to the McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Incorporated. This material is provided for general information, and is subject to change without notice. Every effort has been made to compile this material from reliable sources, however, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information, please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Capital Management Limited.
