Large Tech Stocks Underperform
June 17, 2022
The tech giants that posted phenomenal stock market gains over the last decade have now suddenly come crashing back to reality.
The companies often referred to as “FAANG” Include Facebook (now called Meta), Amazon, Apple, Netflix and Google (now called Alphabet).
For the 10 years ending in 2021 the FAANGs annual return was 28 per cent. That was 12 per cent higher per year than the underlying market as measured by the Russell 3000 Index that posted annual gains of 16 per cent.
As of May 5, this year four out of the five stocks did not keep up with the value of the overall stock market. Combined, they underperformed the Russell 3000 by nine per cent.
First, disappointment for those that own those stocks. Particularly those that watched the stock prices soar over the past years and then finally recently bought the stocks before they declined in value.
Second, that type of stock underperformance is not unusual. Firms that have significant stock market value appreciation that join the covered Top 10 largest companies in the United States often do so because of tremendous growth.
For the three years prior to joining the Top 10 largest market capitalized companies, its stock values increased by nearly 25 per cent per year more than the general stock market.
Five years later those stocks underperformed the market by one per cent annually.
Stock values can rise significantly however that strong growth tends not to continue.
Investors might have noticed disclaimers that past performance is not indicative of future performance. That is not only a warning, but it is true.
Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Watson provides wealth management services through Watson Investments. He can be reached at www.watsoninvestments.com