• November 28, 2022

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Stocks Make Bad Pets – They Can Bite You in Bear Markets!

The FAANG stocks just hammered their loyal, “never sell-em!” investors.

The legends of the NASDAQ
NDAQ
Composite (Facebook/Meta Platforms, Amazon
AMZN
, Apple
AAPL
, Netflix
NFLX
, Google
GOOG
) led global stock markets into this nasty bear market. Sadly, this was predictable to investment veterans who remember the bear markets after the Dotcom bubble of 2000 & the Great Recession of 2008 when the NASDAQ declined 78% & 56% versus the DJIA’s 40% & 47%.

NASDAQ Composite With 200-day Moving Average (2016-2022)

As an active money manager with offices in the San Francisco Bay Area for the last 30 years, it’s interesting to watch a financial illness that effects investors young & old, “Pet Tech Stock-itis”. It’s an affliction that particularly hits local investors who are enamored with local technology companies and their celebrity executives. Sadly, they (and many of their financial advisors) don’t follow the timeless wisdom in the phrase, “one bitten, twice shy” as they will NEVER sell their FAANG stocks under any conditions even though they experienced or know what about the catastrophic losses many of these high-beta stocks suffered in 2008.

I faced this situation earlier this year as we systematically trimmed or eliminated technology stocks from most of our client portfolios due to high valuation & price-trend downturns. Several of our clients emotionally prohibited selling these stocks even though they logically agreed with our reasons. I cringe when I hear the phrase, “I love their products” or “I like the CEO” as if they are a family member or trusted pet.

Tragically, this blind loyalty has come at a high cost as it will take many years for these investors to get back to break even. For example, META will need to rally an improbable 324% to get back to its previous 2021 high.

Fortunately, I have come up with a vaccination for this deadly fiscal disease called “FAANG=BS” (as honorable “pet” mentions, I’ve added “B” for Bitcoin
BTC
& “S” for Salesforce.com).

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The Winans “FAANG=BS” Vaccination for Pet Tech Stock-itis:

F – Forget About Celebrity Tech CEO’s; ego-driven agendas don’t benefit shareholders

A – Analyze Price Trends; All bull markets end – consider selling over-priced tech stocks at highs

A – Analyze Taxes on Profits; It’s not what you make, it’s what you keep – after tax, avoid short-term trading.

N – Never Believe “Easy Money” Investment Hype; remember Wall Street promises made about “FAANG”, “BRIC” & “Real Estate Never Loses Value”

G – Goals lead to Profitable Investing; disciplined investment selection, profit taking and minimizing losses are essential to keep greed & fear in check.

B – Boring Stocks Can be Better; It’s not about HOW you make money – it’s about MAKING profitable investments!

S – Stop Loss Orders; Use pre-set orders to limit losses & profit taking limit orders to protect profits.

Rebalancing a Tech Heavy Portfolio

It’s time to de-personalize your portfolio with companies & CEOs you probably don’t know. But, that doesn’t mean settling for poor performance. In evaluating cumulative stock price appreciation from 2007 to 2021, I found ten mid to large cap companies that outperformed most FAANG stocks and are doing well in this year:

Financial – Jack Henry & Associates

JKHY
(JKHY), AJ Gallagher (AJG)

Healthcare – UnitedHealth Group (UNH), Humana

HUM
(HUM)

Retail – Dollar General

DG
(DG), Autozone (AZO)

Restaurant – Texas Roadhouse

TXRH
(TXRH)

IT Services – Fair Isaac (FICO)

Manufacturing – Toro (TTC)

Real Estate – Texas Land (TPL)

During COVID, I adopted a beautiful German Shepard named Anya who happily greets me everyday at the door after work.

My investments are not beloved pets, and I have no hesitation about selling any stock when it violates my investment parameters.

Love family

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