Historical data says to stay away from FAANG stocks in the next decade - The Average Joe

    Historical data says to stay away from FAANG stocks in the next decade

    Mike Hyer

    August 19, 2021

    Faang stocks

    August 19, 2021

    Think FAANG stocks are forever? Think again. The strong track record of FAANG stocks — Facebook, Apple, Amazon, Netflix and Google — made them go-to investments for investors seeking consistent growth. For the past 5 years, these stocks averaged annualized returns of 41.6% — easily outperforming the S&P 500’s 15.8% per year.

    But today’s giants could be tomorrow’s dinosaurs. According to Ruchir Sharma, there’s no guarantee they’ll stay on top. The larger they become:

    • The harder they fall: Data shows top companies of one decade have less than a 20% chance of staying at the top by the end of the next.
    • The harder they’re regulated: Each of the FAANG stocks (except Netflix) are going through regulatory scrutiny for their dominance in their industries.

    Only downhill from here: In the decade after a company reaches the top 10, we see two things play out on average:

    • Growth falls from 16% to 4%.
    • Stock returns turn negative.

    Their massive scale eventually becomes a roadblock to their growth. But there’s one exception: Microsoft, the only company to remain in the top 10 for 3 decades.

    Looking forward: We’ve written extensively about the companies that can become the leaders of tomorrow. But in the end, it’s difficult to tell which will reach the top in 10 years.

    • Both Amazon and Netflix’s stocks crashed more than 50% several times as a public company.
    • Facebook crashed more than 50% in its first 6 months after going public.

    But we can rely on data  — and it tells us, these stocks are unlikely to stay tomorrow’s drivers of return.

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