This Sector Has Never Lost Money In 5 Years

We’ve discussed the FAAMNG stocks mostly in a negative light in recent months because of the crowding effect. That’s when a business or industry becomes so loved that even if it does well, it’s unlikely to live up to expectations, causing it to have weak performance. The ‘old school’ theory is you need to believe something different from the market to make alpha. You can be bullish on a stock that has done well, but you need to be more bullish than expectations to make a profit above the market. You need to believe in something that isn’t priced in. You always need to be a contrarian in some matter even if it’s a popular stock. In reality, tech will continue to do well if real interest rates move lower.

That concept has gone by the wayside as some investors are piling in to the worst companies because their stocks have done the best. Let’s not forget how the growth trade started. It began with FAAMNG before morphing into unprofitable companies with strong momentum. The crowd is being led by retail traders using stock options to manipulate the underlying. Analysts fear career risk, so they just go with the hot trades, acting like short term speculators who only care about stock prices. At least the FAAMNG stocks have had amazing business performances. As you can see from the chart above, FAAMNG is in a league of its own in terms of high asset growth combined with a high return on equity. No other industries come close to matching this performance.

Staples Never Lose

As we mentioned, in this market investors have piled into the worst businesses. Anything with sales growth wins even if there is no chance of making a profit. In fact, if competitors all don’t need to make a profit, then it will be tough to ever turn one because competition will be brutal. In the late 1990s and today, it’s better to lose money so investors can be as optimistic as possible. Once real profits start, investors are stuck projecting growth more realistically. This market is perfect for tech stocks and IPOs/SPACs.

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