There's a new group of stocks that are now considered "invincible." In typical market fashion, we have a clever moniker to describe them: FANG, which stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google, (GOOG, GOOGL).
The FANG stocks are unstoppable and can do no wrong in the eyes of Mr. Market. Had you owned these four stocks this year -- and many growth or tech funds did -- odds are that your returns have decimated the market's.
The FANG members, in order of spelling, have returned 36%, 117%, 168% and 45%, so far in 2015. Mr. Market loves these stocks. They can do wrong at the moment: the corresponding price-to-earnings ratios are 107, 975, 345 and 36, respectively. Alphabet/Google looks like a steal compared to the rest.
History offers a lesson to investors who have unwavering loyalty to these stocks: At some point, the market will turn and there will be a lot of money lost. This cautious tone may seem ridiculous today, but history says otherwise. I wouldn't bet on historical trends, not when it comes to the stock market.
In the 196's and '70s, there was a similar group of stocks -- names like Coca Cola (KO), Wal-Mart (WMT) Sears (SHLD), Eastman Kodak (KODK), Xerox (XOX) and others -- that were considered buy-and-hold growth stocks at any price. Investors could not afford not to have positions in these companies. Just considering the sample above, it's evident what happened here -- the bubble burst and 100 P/E stocks turned into 10 P/E stocks. Some companies no longer exist today.
It's hard to think we could ever be without businesses such as Facebook, Amazon and Google. I see names such as Amazon and Google as truly the blue-chip stocks of today's world.
Every week I learn something new about Amazon that dazzles my mind. Although it is not disclosed, it's estimated that Amazon has nearly 20 million Prime subscribers that pay $99 a year. The subscriber revenues alone are large enough to be a stand-alone Fortune 500 company. I would love to own a piece of Amazon -- it's truly a fantastic business that is going to be the dominant force in all of retail -- unless you talk to Jack Ma at Alibaba (BABA).
Yet a great business does not a great investment make. Before you think owning these darling tech stocks at any price is a risk-free investment decision, remember the wise words of one Mark Twain -- history may not repeat itself, but it does rhyme.