Happy Halloween! I figured I’d pop in with a little something spooky today and talk about FANG Stocks, which are companies from Transylvania ?.
Kidding! FANG stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOG) a.k.a. how I spend my Friday nights. (Google is technically Alphabet now, but stick with me cause FANA just doesn’t have the same ring to it.)
So why did we group these four companies into yet another financial acronym? Jim Cramer (this kooky guy), coined the phrase a few years ago to represent the four most popular and best-performing tech stocks in recent history. In the last 5 years, the four stocks are up between roughly 140% and 1,665% each as you can see below.
When we’re looking at a stock’s performance, it’s important to look at it in terms of relative performance i.e. how did it do compared to its peers. A return of 10% might sound great, but if you found out the market as a whole was up 20%, you might be bummed that you’re underperforming. On the flipside, you’d hate to find out your portfolio was down 5%, but if the rest of the market was down 15% you might be relieved that you were actually outperforming.
So how do we compare stocks to their peers? We typically will use an index which is a group of stocks meant to represent the industry or market as a whole. For FANG stocks, we’ll look at two major indices: the NASDAQ 100 and the S&P 500. The NASDAQ tracks the performance of 3,000 stocks, many of which are technology and biotech giants. The NASDAQ 100 represents the 100 largest stocks out of that 3000, so it’s no surprise that the FANGs are in that 100. It’s the green line on the chart above.
You’ve may have heard of the S&P 500 as it’s commonly referenced when we talk about the US stock market as a whole. It’s made up of 500 large-cap US stocks and represented by the orange line on the chart above.
As you can see, over the last 5 years, these big four tech stocks have outperformed these two indexes by as much as almost 20x (looking at you NFLX… and yes we’re still watching).
As the FANGs continue to charge higher and higher there’s been some concern that we’re looking at a repeat of the tech bubble bust we saw in the early 2000s. Others argue that today’s tech environment is very different as we’re on the cusp of integrating new technologies such as Artificial Intelligence (AI) into our daily lives.