Long positions: $GOOGL, $BRK.B
Not so FAANG-tastic
As markets continue to implode around us, it is easy to forget the propellants which powered the bull market in recent years.
One of these major propellants has been the famous collection of FAANG stocks (Facebook, Amazon, Apple, Netflix and Google/Alphabet).
These high-performing mega-tech companies have made life miserable for active investors, particularly mutual fund managers with a “value” focus.
Outperforming the S&P has almost become a binary question: if you were overweight FAANG or tech, you probably succeeded. If you didn’t, you probably failed.
Since the FAANG stocks tend not to fit into the value philosophy of “cheapness” (relative to traditional metrics), and since having an overweight position in the very largest components of the benchmark index is not the typical behaviour of an active manager, the vast majority of US active managers have underperformed the S&P.
I’m one of those investors who has mostly failed to participate in the tech boom. I’ve watched with incredulity as the NASDAQ Index has multiplied investors’ money many times over. I continue to believe that there are huge valuation bubbles in tech, with over-optimism existing on a grand scale (though recent market falls suggest that the tide may be turning).
But despite my scepticism when it comes to tech valuations more broadly, it has not escaped my attention that Berkshire Hathaway ($BRK.B, in which I have a long position) invested in two of the iconic FAANG stocks: Amazon and Apple.
Amazon was purchased by one of Buffett’s lieutenants (Todd Combs or Ted Weschler), as was Apple, before Buffett himself ordered purchases in the iPhone designer. In his recent CNBC interview, Buffett called Apple “probably the best business I know in the world”. That’s a remarkable claim from someone who has studied more than his fair share of businesses.
Indeed, Berkshire Hathaway has become the biggest shareholder in Apple (excluding the ETF giants Blackrock and Vanguard).
When it comes to my personal portfolio, in addition to backing Berkshire Hathaway, I’ve also taken a strong interest in Alphabet ($GOOGL), which I think might be the most powerful collection of natural monopolies ever assembled under a single corporate umbrella.
Yes, it’s a tech stock and a member of the FAANGs, which have attracted a huge wave of speculative interest during the extended bull market. But I believe that it has some…
