GE & FAANGs: History Is Shouting In Our Ears

The FAANG trend is coming apart. An equal-weighted basket of Facebook, Amazon, Apple, Netflix and Google parent Alphabet—the darlings of yesteryear—has fallen a collective 23% since June 22, way behind the S&P 500’s loss of 10.2%.1 With both Amazon and Apple touching $1 trillion valuations last year, let’s reassess the story of another onetime darling growth stock: the General.

General Electric could once do no wrong, too. GE’s fall to earth after peaking at around $600 billion in 2000, a fall from grace accompanied by so many highfliers of the 1990s, ushered in a reversal in market leadership. Value took the baton from growth. From GE’s valuation high to the stock market’s October 2002 low, the S&P 500 Value Index was able to pick up 1,282 basis points (bps) over its growth counterpart.

But it wasn’t just the 2000–2002 bear market where value shined. When it came time for a fresh stock market bull from 2002 to 2007, the investment style crushed growth. Forget the 1,282 bps that value picked up during the bear; the real money was made in the next 7,325 bps from the market low through May 16, 2007.

Given value’s ever-so-slight leadership in last year’s second half amid the carnage in the FAANGs, maybe 2018 marked the moment the big darlings “pulled a GE.”

Are the FAANGs shouting an important message?

The Deeper Story

There are 34-year-olds who have been in the business for 12 years and haven’t seen a prolonged value cycle. That almost includes me, pushing 40, gray hair, the whole lot. It’s been so long since the Graham & Dodd2 that I read almost 20 years ago has actually worked. At least as far as the traditional Morningstar-style boxes are concerned, you start to forget what it feels like to see growth stocks really lag.

Look at the bold disparity in the market’s internals. From July 2006 through September 2018, the S&P 500 Growth Index returned 11.4% annually, while its value counterpart put up 7.0%. Cumulatively, growth returned 271%, more than double value’s 129%.

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