By Michael Aitken
As I approach my mid-century plus five birthday (spoiler alert!), in my head I still feel the 80’s were only yesterday. Sadly, time has crept up on me as it does to all of us, and reflecting back to times when life seemed simpler and definitely slower is a sport for an aging population.
It still frazzles my mind that the iPhone – the front-runner for smart phones, only came into being on 29 June 2007. Amazing to think that that was just before the largest global financial crisis – which definitely feels like yesterday. So while reflecting on days gone by, the explosion of instantaneous technological must-haves has made us a world addicted to instant gratification and spontaneous connections with each other and the outside world. The ability to know when a Whatsapp message has been read and if you do not instantly reply brands you as “rude”.
When historians look back at this point in time, they’ll describe it as a technological revolution. Companies like Amazon, Apple, Facebook – they’ve changed our lives, for better or for worse. And there will be plenty of you reading this with both positive and negative views on these companies, and I share plenty of those views myself.
Whatever your stance, the world has undoubtedly changed as a result. These innovative tech companies have changed our everyday lives, and they’ve also had a big impact on investment landscapes too.
Investing in these companies is something of a ‘trend’ these days. Indeed Facebook, Apple, Amazon, Netflix and Google are now collectively known as ‘FAANG’, in investment circles. These tech giants outperformed the S&P500 index by a significant margin in 2017, leading the New York Stock Exchange to launch the NYSE FANG +TM index. Quarterly ‘FANG’ futures contracts (Apple is not included, hence only one ‘A’) also now exist, meaning investors can now bet on the future success – or otherwise – of these companies. A trend. A fad? We’ll see.
Exhibit 1: Total Returns in USD*
Year to date as at October 31, 2017
Trends, or ‘themes', are commonplace in investing. Who remembers the dot-com bubble of the early 1990’s, with companies trying to cash in on brand new internet innovation with varying degrees of success. The likes of Google and Amazon nailed it – plenty of others did not. Then there was BRIC, as investors targeted companies from Brazil, Russia, India and China. Some investment houses created new funds investing specifically in these countries, although not many of those products still exist today…
And perhaps the biggest trend of recent times was investment into sub-prime assets, which ultimately led to the great financial crisis of 2008. Enough said.
The points is, trends can have their day in the sun. But like waves crashing onto a beach, many of them, sadly, can and will hit the rocks. And that’s not to say any of the fab FAANGs are heading toward such a fate. Rather it means that, as investors, we should seek the calm waters of consistency, rather than chasing performance peaks, exposing ourselves unnecessarily to the inevitable troughs that follow.
The best approach, as always, is to employ a long-term investment plan. Understand what you want to achieve financially, and by when, and then work with us to select an investment solution that gives you the best possible chance of achieving your desired outcome.
By chasing trends, we risk picking the one that goes wrong, or missing the one that goes right. Diversifying our investments gives us the best possible chance of covering all bases – of holding assets in the sectors that do well, and in so doing minimising the risk if it does go wrong.
And, that’s why, because no one has a reliable crystal ball, we believe a better approach is to diversify. That way we increase the odds of being positioned in the next big winning sector without chasing hot trends or latching on to cute‑sounding acronyms.
Exhibit 2: Diversification May Prevent You From Missing Opportunity2
Compound average annual returns in USD: 1994-2016
As for the kids? One day they’ll be parents, being FaceTimed by their own children at inopportune moments, getting tapped up for online orders without even knowing it. Only life, and technology, will have moved on once again, and who knows what will be trending by then.
1. “Goldman Closes BRIC Fund,” The Wall Street Journal, November 9, 2015.
2. Exhibit 2: Diversification May Prevent You From Missing Opportunity2 Compound average annual returns in USD: 1994–2016 All stocks 7.3% Excluding the top 10% of performers each year 2.9%. Excluding the top 25% of performers each year −5.2%
Diversification does not eliminate the risk of market loss. Past performance is no guarantee of future results.
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