Finance news can be so boring and predictable, focusing on blue-chips or the latest news on FANG stocks.
For years I’ve focused on penny stocks. This unique niche offers the best trading opportunities for me. And it’s allowed some of my students to exponentially grow their accounts.
But for some reason, mainstream media chooses to focus on stocks that are far less volatile and much harder to predict. It’s such a limited way to look at the markets.
I wish they’d open their eyes and see the vast opportunities penny stocks can offer. But instead of forcing people to change their mindset, I’ll take a deep dive into FANG stocks. And maybe I open your eyes and show you there are better ways to invest your hard-earned money.
Table of Contents
- 1 What Are FANG Stocks?
- 2 Why Do FANG Stocks Matter?
- 3 Should You Invest in FANG Stocks?
- 4 How to Invest in FANG Stocks
- 5 Is There a FANG Stock Bubble?
- 6 FANG Stock Charts
- 7 What to Expect From FANG Stocks in 2020
- 8 Conclusion – FAANG Stocks
What Are FANG Stocks?
Once the economy recovered from the Great Recession, there were new market leaders. Technology companies rose from the chaos and helped propel the economy forward.
These companies began to amass a large following because of their above-average returns. To help viewers follow these emerging technology companies, my ‘favorite’ (note the sarcasm) financial anchor Jim Cramer coined the term FANG.
FANG is an acronym for the best performing tech stocks, which include Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and Google (NASDAQ: GOOG).
Later on, FANG became FAANG to include Apple. So you may see some references to FAANG instead of just FANG. In most cases, this isn’t a huge deal.
But it’s fair to say Apple (NASDAQ: AAPL) has earned its place among the FANG family over the last decade.
Cramer created the group to help investors invest their money into companies that represent the future. To this day, all the members of the FANG group are dominant in their markets and continue to have serious momentum thanks to their continuous innovation.
Why Do FANG Stocks Matter?
Together, FANG stocks represent trillions of dollars in market capitalization. The vast size of these companies can dramatically impact the direction of the market. But just because they’re huge doesn’t necessarily mean they’re slow.
Unlike large companies of the past, these giants heavily invest in research and development, and that significantly spurs more explosive growth.
Rather than taking profits and paying executives fat bonuses, the FANG stocks are on a mission to change the world. Every one of these companies strives for innovation and growth, pushing boundaries and creating millions of jobs in the process.
Should You Invest in FANG Stocks?
FANG stocks can be risky. Since the companies rapidly grow, they’re often prone to more volatile movements than the more stable blue-chip stocks.
And as investors experienced at the end of 2018, FANG stocks aren’t immune to pullbacks.
I’ll be honest … for a moment, the pullback was scary. But the FANG stocks didn’t die off. Instead, they recovered well.
Let me pause here to remind you that I’m not a financial advisor nor am I giving you financial advice. All trading and investing is inherently risky. Always do your due diligence.
Personally, I’m a huge fan of FANG stocks. They’re disrupting old industries that failed to innovate. They’re making the world a more efficient place. Their technologies are unmatched. Together, the FANG group is changing the world, and I believe they’re just getting started.
So, you could argue that logically it makes a ton of sense to own FANG stocks. How many of us use their products every day?
I’m constantly on Facebook…
I frequently buy stuff on Amazon…
I love to catch up on my favorite Netflix shows…
And how do I get to any website? You guessed it … Google.
I can’t imagine my life without FANG companies. It seems crazy not to own any shares when you think about how often you use their products.
It may seem crazy, but there are plenty of reasons why trading doesn’t always work that way. Just look at Uber’s IPO and stock performance…
FANG Stock Performance
According to Morningstar, the FANG group returned nearly 700% in profits for investors between June 2013 and August 2018.
I know … I said FANG stocks aren’t all they’re cracked up to be. But when you compare them to the overall market, it’s not a close competition.
In a five-year period, FANG stocks returned 700%. The average one-year return of the S&P 500 is around 8%.
From this perspective, FANG stocks seem like a goldmine. But, there are penny stocks that move over 300% in one day. Wall Street loves to hate on this niche. But I — and many of my students — have learned how to capitalize on these volatile low-priced stocks.**
Is There a FANG ETF?
There’s not a single ETF that carries exposure to only FANG stocks. The point of an ETF is to help investors diversify their portfolios. Having an ETF with only four stocks defeats the purpose of diversification.
The closest ETF for FANG only stocks is the AdvisorShares New Tech and Media ETF (NYBOT: FNG). It’s important to note this ETF still has 25 stocks in its bundle, but they’re all closely related to the FANG companies.
If you’re interested in only investing in FANG stocks, the easiest approach is to buy the individual stocks in your brokerage or retirement account.
How to Invest in FANG Stocks
Let me repeat my disclaimer from above, just in case it’s not super clear…
I’m not an investor and I’m in no way giving you financial advice. All trading and investing is risky. Never risk more than you can afford. Do your due diligence.
FANG stocks all trade on the Nasdaq exchange and are part of the S&P 500. Because of their high standing, any standard brokerage or IRA account will allow you to invest in a FANG stock.
The Best Way to Buy FANG Stocks
Before you log into your brokerage account and blindly buy some FANG stocks, let me explain my favorite time to buy. Typically, these stocks move together in a group. And since they’re some of the hottest long-term stocks, they tend to trend upward endlessly.
That uptrend can be confusing and scary for investors — what if you purchase shares at the top? It can be smarter to wait … and wait … for bad news.
I know. It can be counterintuitive. But when FANG stocks have bad news, they pull back for several days or weeks. Or, if you look at 2018, several months. Bad news can allow you to buy shares cheaper. Or if you already have shares, you can add to your position.
Odds are, if you trade FANG stocks, you’re thinking many years into the future. So you might want to buy shares as cheaply as possible.
How to Short FANG Stocks
Unlike penny stocks, FANG stocks are extremely liquid. That means there are always shares available to short. Most of the time, the shares are easy to borrow, so there aren’t any additional fees to locate the shares.
Plus, some large companies offer put options to increase an investment’s leverage. So the question isn’t if you can short FANG stocks, but if you should.
As it currently stands, there’s no reason for these stocks to drop. That could change if the market shifts.
Is There a FANG Stock Bubble?
FANG stocks could be in a bubble. The thing with bubbles? Most people don’t know they’re there until they pop.
Sometimes, assets rightfully increase in value. But the big question is whether FANG stocks have come too far too fast.
Earlier I mentioned the mind-boggling 700% return the FANG stocks gave investors from 2013 to August 2018.
And then … they pulled back. A lot of investors were scared the FANG bubble was about to burst. The stocks all pulled back 30%–40% in a matter of months. Facebook took an unusually large hit because of the data scandal.
The end of 2018 was a scary time for FANG investors. But these tech giants rebounded with a vengeance in 2019. The entire group rebounded off 2018 lows and provided investors with handsome returns throughout 2019.
Based on the price action of the FANG stocks, I don’t think they’re in a bubble. Again, I could be wrong. But if it was indeed a bubble, it should have burst when the FANG stocks plummeted in 2018. But they all bounced back to all-time highs within a year.
These are healthy, growing companies. There will be some volatility from companies that are still rapidly expanding. Unlike the dot-com bubble, there’s still plenty of money and room to expand here. Cloud computing, artificial intelligence, and big data are just a few areas that hold potential for even more enormous growth.
I see no reason to panic … yet.
FANG Stock Charts
I’ve talked a lot about the impressive moves these stocks have made. Now that I’ve explained the fundamentals, I think it’s time to check out the daily charts…
FB Daily Chart
AMZN Daily Chart
NFLX Daily Chart
GOOG Daily Chart
Looking at the daily charts over a 5–10 year period, its no wonder people think FANG is in a bubble. The 2018 pullback was the only period the stocks didn’t go up.
What to Expect From FANG Stocks in 2020
With all the FANG stocks at or near all-time highs, it’s hard to imagine the sector not continuing higher.
Take a look at AAPL, now part of the FAANG family…
AAPL Daily Chart
AAPL (and the rest of the group) experienced a healthy pullback in 2018, which primed it for its next leg higher. AAPL is now at all-time highs and trending nicely. Until some news or macro event stops it, there’s no reason for the trend to change.
FANG companies continue to innovate and expand. Their revenues continue to rise, and there’s plenty of room for them to continue growing. But with any investment, there are always risks.
The U.S. stock market has been on a 10-year bull run. This is the longest stretch in the history of the stock market. Although these companies experienced a healthy pullback, the overall market is overdue.
If the market enters a recession, the FANG stocks will likely go with it. To make matters worse, the world economy appears to be slowing. And a pullback is part of a normal market cycle.
You also have to factor in the continued drama with President Trump and his impeachment. Will it affect the market? It very well could. No one knows how these events will play out — but you should be aware of anything that can affect stock prices and overall market sentiment.
Conclusion – FAANG Stocks
Financial institutions want you to believe FANG stocks are the hottest thing in the market.
But that’s just not true. There are dozens of other sectors and industries that are growing faster than FANG stocks. Or that can offer better opportunities for traders with small accounts.
There’s plenty of risk with these high-growth companies. The financial networks just don’t think you’re smart enough to know anything other than what they try to spoon-feed you.
There are a lot of different ways to trade in the stock market. You don’t have to listen to the talking heads on TV. What you really need is to be a self-sufficient trader.
That’s exactly what I teach my students. And I’ll be the first to tell you — trading isn’t easy.
But it can be worth it. Many of my top students make six and seven figures.** They’re now financially free, living life on their terms.
And they didn’t do it by buying FANG stocks.
Learn to think for yourself. Learn to trade through any kind of market. Apply for my Trading Challenge today. But only if you’re really ready to work. It’s not easy and not everyone makes it in.
But if you do make the cut, I look forward to seeing you in my chat room. Let’s make 2020 a great year.
[**Note that these results aren’t typical. These students put in the time and dedication and have exceptional skills and knowledge. Most traders lose money. Always remember trading is risky … never risk more than you can afford.]
What’s your take? Comment below — I love to hear from all my readers!