Recently the acronym “FAANG” has been showing up more and more. For those of you not fully versed on this, FAANG stands for Facebook, Amazon, Apple, Netflix, and Google. The market darlings of the day!

Many investors have taken significantly over-weighted positions on these stocks based on their performance (which has been outstanding) over the past decade. One measure of broad market performance (see attached) has the market up by 12.6% yearly over the ten years ending 12/31/18, while the FAANG holdings have returned 30.4% over the same time period.

What folks don’t recognize is that IT IS NO DIFFERENT THIS TIME!!! Just about every ten years has had its comparable FAANG stocks. However, the composition of the top 10% of the performers in the market changes radically and significantly over time. AND, there is no way to a priori identify these stocks.

Will the FAANGs continue to “kill it” in the market? Perhaps. But the key, in my opinion, is to recognize that an effective investment strategy goes way beyond chasing the top five performing stocks of the past decade. History suggests that this strategy is highly volatile and can lead to sub-par returns.

You can get a more detailed discussion of this topic by jumping to this link, which contains a PDF file going into more detail on this topic.

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