Have you ever heard of “FAANG,” when it comes to investing? The concept is an acronym for what is currently considered the “5 hot stocks” to buy in current markets.
“FAANG” stands for Facebook, Apple, Amazon, Netflix and Google/Alphabet. These are considered 5 of the hottest stocks in the market today. These 5 stocks have no doubt created a lot of rich people and in turn, have generated a lot of buzz when it comes to any investor from the newest to the most advanced. This concept has driven further theory and speculation into “figuring out” or “cracking the code” to the unpredictable stock market which has been going on since its inception in 1926.
When it comes to investing, there are several forces at work both psychologically and emotionally. The first force is that for most people the stock market represents a “necessary evil.” This means that most people come to the realization that outside of alternative managed investments like rental real estate, the stock market poses the single greatest opportunity to generate returns. For most, it is what allows people to create retirement income and solve other financial objectives like education planning, etc.
The second “force” is that people generally don’t understand how the stock market works and, in turn, how to efficiently use it to achieve those financial goals and objectives. So, it creates a pickle. In addition, most people tend to look at their respective financial situations in a very negative light. “I haven’t saved enough” or, “I started saving way too late” are phrases I often hear.
Many times in my career I have met with people who saved more than enough in the most tax-efficient ways to retire yet they do not feel as though they can. This is an example of the emotional side of investing. Most do not have a clear plan when it comes to why they are investing. For many, it is defined simply by maximizing returns! The reality we all know, but sometimes choose not to recognize, is that anything in life with great reward comes with equal or greater risk.
We are all looking for the golden ticket, the next FAANG. When it comes to investing in the stock market, the truth is that no one has a crystal ball and, therefore, they are left to “guess” what will be the best. I often remind my clients about Blockbuster in the 90’s. The very concept of going to a store to rent a physical movie is foreign to most teenagers today, but for those of us who remember Blockbuster, it was part of the “FAANG” stocks of the 90’s. The company that once ruled the world and had a total monopoly over “movie rentals” is a distant memory.
It is imperative that when it comes to investing, there should be a clear plan and expectation behind it. If having fun and playing the market is the objective, then FAANG is a great concept. If you are investing for bigger, more important objectives like education or retirement, then it is imperative that you manage the risk of the markets properly. Beware of gimmicks in anything — especially investing. After all, Disney World created a service model decades ago that, to this day, remains worlds apart from most other companies on the globe. Some of the greatest minds the investing world has ever seen look to discipline and diversification to establish clearer expectations they will receive from their investments. For every winner of the lottery, there are hundreds of millions of people who lost.
Do not let yourself get caught up in the hype. Educate yourself on the markets, how they work and how to best maximize your goals. Please let us know if you may have any questions.
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Written by: Ronnie Thompson