It’s Time to Break Up the FANGs
Investing in 2017 is easy.
Buy one of the popular tech stocks: Facebook, Amazon, Netflix, Google — it doesn’t matter. Then sit back and wait for the gains to roll in.
You don’t need any complicated strategies. Heck, you don’t even need to look at a chart. All the FANGs outperform the major averages. Google is the worst of the bunch and it’s up almost 34% year-to-date, compared to a gain of about 16% for the S&P 500.
The big tech stocks have certainly captured Main Street’s imagination this year. Who can blame them?
Buying the FANGs has quickly morphed into a “can’t lose” investing strategy. The cat is out of the bag. Everyone is trying to cash in on this market meme. Yesterday, the Intercontinental Exchange launched the NYSE FANG+ Index futures. Forget about the Nasdaq! They’ve trimmed the fat and given us only the most-hyped tech names to trade…
The index is made up of the four original FANGs plus Alibaba, Baidu, Nvidia, Tesla and Twitter. To be clear, I have no idea how Twitter snuck into the club. While I like Twitter as a comeback play right now, I’m not sure it deserves to get lumped in with the rest of these world-beating stocks.
Aside from this unfortunate outlier, the FANG+ Index futures has packed the market’s hottest stocks into one trading vehicle. FANG is no longer just a fun acronym coined on Cramer’s Mad Money. It’s now an actual index with its own futures contracts. That should set off some alarm bells.
Even the FANG+ press release encourages customers to “trade the top of tech”.
“Is it really the top of tech, like 1999?” one analyst asked the Financial Times.
If the market does post a significant drop from here and the fearless FANGs lead stocks lower, pundits will surely point to the launch of FANG+ Index futures as tech’s harbinger of doom.
Of course, market tops are downright impossible to call in real time. We can only piece together the possible causes after the dust clears.
I’m not here to tell you the top is in for the FANGs. Instead, I think we should break them up. The entire investing world is lumping these household names into one. The contrarian in me says that means it’s time for them to go their separate ways. After all, these companies are all duking it out to win the top spot in tech. For the most part, they’ve moved together in 2017. That can’t last forever.
The market gods have given us a tremendous gift. Over the past 12 months, we’ve enjoyed near-perfect trading conditions. Most stocks have moved steadily higher. The major averages haven’t even posted a 5% pullback. Investors have nothing to fear.
Ever since the market bottomed out after the financial crisis way back in 2009, more than a handful of market pundits have liked to say we’re experiencing the most hated bull market of all time.
That’s a bold statement. And up until recently, I didn’t think it was true. Over the past several years, I contended that we were experiencing the most ignored bull market of all time.
For the record, hate or indifference aren’t very different when it comes to stocks. The herd can stay on the sidelines and bicker about political headlines or valuation concerns. The market loves to rally in the face of skeptics. That’s exactly what we’ve seen since the 2016 election.
But now we can safely say the bull market has grown up. Investors aren’t ignoring stocks anymore. This year’s melt-up has finally awakened the bulls. While the herd’s excitement grows, it’s time for us to look beyond the “can’t lose” FANGs and find the trades no one else is talking about…