The Most Crowded Trade of Them All
Bullish bets on the FAANGs have been one of the most crowded trades on Wall Street over the last eighteen months.
Nasdaq's streak of record highs has sucked investors into top names like Facebook, Apple, Amazon, Netflix and Google (FAANG stocks) making the technology-heavy index the "most crowded" trade in the universe right now.
The Nasdaq has been on quite a run. Here’s what some big tech stocks did in 2017:
And in 2018, the Nasdaq is up +12.8%, outpacing all major stock indices.
A fund manager survey by Bank of America Merrill Lynch named FAANG the “most crowded trade” of them all, back in March of 2017. Then the crowd fell in love with Bitcoin. The Bitcoin millionaire wannabes were a touch hysterical and buying was reckless. So, Bitcoin briefly overtook the FAANGs to assume that title in December 2017 - until it crashed and burned.
These crowded trades can go on longer than you might think, but not indefinitely. When they turn, things can get ugly in a hurry. Once the majority of investors are long, there comes a point when there’s no one left to buy. And if there happens to be any kind of hiccup, it can turn into a disaster pretty quickly – just ask shareholders of Facebook and/or Netflix. Shares of both companies were recently slammed after missed earnings estimates and revenue guidance.
When a trade gets overly crowded, as an investor, you should have one eye on the exits. You don’t have to sell everything if you happen to like technology. There’s nothing wrong with trimming your positions and then adding back shares on the next big correction. Unless you don’t think a correction will ever happen again (chuckle).
George Kiraly Jr., CFP®, MBA is a NAPFA-Registered Financial Advisor.
Disclosure: George Kiraly Jr., CFP®, MBA is the Founder & Chief Investment Officer of LodeStar Advisory Group, LLC, an independent Registered Investment Adviser located in Short Hills, New Jersey. George Kiraly, LodeStar Advisory Group ("LodeStar"), and/or its clients may hold positions in any ETFs, mutual funds or investment assets mentioned above. Any projections, market outlooks or estimates in this material are forward-looking statements and are based upon certain assumptions that are solely the opinion of LodeStar. They should not be construed to be indicative of the actual events which will occur. Further, any information regarding portfolio composition, portfolio composition methodology, investment process or limits, or valuation methods of evaluating companies and markets are intended to be used as guidelines which may be modified or changed by LodeStar at any time in its sole discretion without notice. Asset allocation and diversification does not assure profit nor protect against loss. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. The above commentary does not constitute individual investment advice. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.