Big Moves in Big Tech
FANG (or is it FAANMG?) investors have had a dizzying few days.
There have been some major moves in US Big Tech in recent days.
Even if you don’t own shares in this list, how they perform is hard to ignore:
One reason they can’t be ignored is that, collectively, they represent 21% of the entire S&P 500 market capitalisation. See this chart by Yardeni Research:
These half a dozen firms have a highly disproportionate impact on overall market returns.
That’s worth bearing in mind if you’re measuring yourself against an index which includes US stocks: the choice not to own these names is a significant departure from benchmark!
How I’ve navigated FAANG
From a personal point of view, these companies have been good to me, even though I was late to the party. And of course when things go well, we always wish we had invested more!
I added Alphabet (GOOGL) to my portfolio in June 2019, at just under $1100 per share.
My appreciation for its monopolistic powers had grown over the years, but I had never felt confident enough to pull the trigger with available funds at any particular moment.
Summer 2019 was different. The stock had failed to make much progress for a little while, even though the underlying fundamentals were as strong as ever.
From the simple point of view of valuation multiples, the forward P/E had fallen as low as 20x, and even dipped below it.
This is what the trailing P/E looked like:
The stars had aligned: a company I admired for many years, at last had a valuation that a stingy value investor would pay up!
(As a long-term sceptic of Tesla’s “Full Self-Driving” ambitions, I also have an emotional attachment to Google. Google’s subsidiary Waymo might never make much money, but I believe that it’s developing autonomous driving the right way, i.e. safely and responsibly.)
Google is nearly a two-bagger for me, and this has been achieved in less than three years.
How to interpret my experience with Google shares? Both of these interpretations are possible:
I should have been less worried about valuation, and should have invested in it many years ago, when its monopolistic power was clearly evident. Valuation worries held back my returns. Therefore, my investment approach was flawed.
Alternatively, by waiting until I had high confidence and there was an attractive valuation, I gave myself the best possible odds of very strong returns from the date of investment. Therefore, my investment approach was correct.
2. is a reasonable point of view but I’m inclined to think that 1. is right. I don’t have a very good excuse for not investing in Google many years previously.
The other “FAANMG” stock I own is Apple.
Except that I don’t own Apple! I own Berkshire Hathaway (BRK.B) (my second-largest single stock investment), which owns a hefty chunk of Apple shares.
By my calculations, Berkshire’s Apple stake is worth nearly 22% of Berkshire’s market cap.
So if you like to think about it this way, only 78% of Berkshire’s market cap represents its non-Apple investments!
Anyway, the huge gains in Apple stock have helped to turbocharge the returns from Berkshire stock.
Given their importance in their own right and their impact on broader market returns, I’m planning to cover these shares for you in more detail in the coming days and weeks:
Netflix shares are down 20% since mid-January, after subscriber growth was forecast to reduce. I already covered Netflix in some detail here late last year. I will now work on an update, taking the latest news into account!
Meta Platforms (FB)
These shares are down by a massive 27% in just three days, after daily active users fell for the first time in its history. Just a blip, or is Facebook the next myspace? This is also on my agenda.
Alphabet shares are up 5% over the past week, after it reported better-than-expected earnings, and a 20-for-1 stock split that will make its shares more palatable for small investors (I can’t say more affordable, since fractional share ownership is already widely available!)
From its low last Thursday, Amazon shares are up 15% after reporting strong EPS that was driven by its investment in Rivian.
One other reason for caution
I understand the view that the monopolistic positions of Big Tech have changed the nature of capitalism and the nature of stock market investing.
But I don’t believe that this view is justified. Instead, I believe it’s just the latest example of “this time it’s different” thinking. (Clue: it’s never different!)
We’ve had very high market concentration before. Things didn’t work out so well the last time:
On that scary note, I’ll hang up my pen for today. Talk to you again soon!