The FAANG Market Is Fading
morningstar.com
morningstar.com
Sure, look at a few years while excluding ~1/4 of the data and I am convinced your analysis is just great.
What the hell, who is this text for?
To measure just how concentrated stock returns have been, we calculated the impact that the 10 largest stocks have had on the Morningstar US Large-Mid Index, which essentially tracks 90% of the stock market. We took the 10 largest stocks at the end of each year going back to 2009, and using Morningstar Direct's equity attribution tool, excluded their returns from the index's performance and compared that number with each year's total return.
into mathematics so I can interpret the percentages in the table below?
Why do people involved in finance hate mathematics so much? Is it obvious to everyone?
EDIT: I think it is: returns_of_index_per_year - returns_of_index_minus_returns_of_top_N_stocks_per_year
EDIT 2: What does "Cumulative Market Impact" mean? When you google it or "Market Impact" it gives bunch of unrelated measures... Finance jargon is such a mess.
Antartica has a place called Wolfang. Lots of solar energy 24 hours for months half the year. Minus fifteen degrees centigrade temperature for the data center stadiums. Near zero cost real estate property prices. Uplink to satellite mega constellations. Two thirds of humanity isn't served as futuristically as Silicon Valley and they don't have a $50K Boxable for their inside. WOLFANG global services oriented market has yet to shine?
Washington state is increasing capital gains tax next year. +7% I believe.
Elon had options expiring soon & was forced to.
Might be other reasons but those should not be overlooked.
Right now that's reasonably big tech in terms of publicly traded US tech companies. Everybody else is a long ways down.
So.
BRK $621b, JPM $476b, JNJ $419b, PG $362b, DIS $265b, KO $231b, VZ $215b, MCD $186b, BA $116, CAT $107b, MMM $100b
All of those companies combined will fit inside Apple's valuation at the rate things are going. And just about every old-line blue chip with a consequential market cap is somewhere between pathetically slow growth and stagnant. Meanwhile big tech is still expanding. And you can replace any number of those companies with others, whether HD, or AT&T (T) or WMT or LOW or PEP or TGT, with much the same outcome.
This article is, you guessed it, laughably, embarrassingly, false.
Big tech will keep getting bigger in relation to most of the other quasi rotting blue chips.
There is nothing coming up that will prompt a massive expansion of the old blue chips such that they're going to retake ground against big tech (not unless one believes all of big tech will be smashed to pieces by anti-trust - never gonna happen). The China boom is largely over, which means these old blue chips can't look forward to sucking off of that market any longer and there is no next China (nothing remotely comparable to that extreme of a boom). Are railroads and airlines going to start suddenly growing at 50% per year? Of course not. Productivity is about to skyrocket? Of course not. The US is going to suddenly take over the world's steel production? GM and Ford are going to put all of Germany and Japan's automakers out of business and every human on the planet is going to buy an extra vehicle? For no apparent reason companies like 3M are going to start growing rapidly? Pepsi and Coke are going to sell 2x the sugar water in an era that is turning against their core products (check out how pathetic Coke's business has been over the last 5-10 years)? How about big pharma, PFE's ass got saved by Covid, at least temporarily, as the vaccine threw them a bone. McDonald's, after so many years of stagnation (and given their saturation), is suddenly going to become a nice place to eat and start selling 2x the fries and burgers? Of course not. Americans are going to start buying a lot more Kraft box pasta or Heinz ketchup or Oreo's from Mondelez or soup from Campbell's? Of course not, it's all slow growth garbage. Campbell's is on a rocket ship to becoming a juggernaut $300 billion soup empire! Yeah, bullshit. And so on it goes.
For most of these companies, if they're lucky, they'll have just enough pricing power to keep up with dollar debasement and not lose real ground over this decade. More likely some of these garbage companies like MCD or KO will lose 1/4 or more of their real business to USD erosion as their customers can't (and won't) pay $5 for a 20oz soda or $6 for fries. These companies have struggled for many years to gain ground in real-terms prior to the recent wave of inflation, it's only going to get more difficult for them (consumers will be trapped in hell between higher prices and eroding real household purchasing power, and that's all assuming household debt doesn't get more expensive (it's historically cheap)).
If anything, the old blue chips will rot further and big tech will gain even more ground, over the next 3-5 years. Even if this market declines, relatively speaking big tech is still likely to take ground over time against the rest of the market.
However, note that there is a very long way to go for traditional industries.
China is one big chunk of people, and they may be in for a rough couple of decades with their recent return to hardcore communism, but there is a lot of room to grow there still. And there is India and all of Africa.
Untold numbers of people in the third world are rapidly approaching middle-class status, buying fridges and cars and so on.
This will have the concomitant effects on the rest of the economic ecosystem, and tech will ultimately gain even more from more rich consumers. But it's not game over for the big old juggernauts.
> Untold numbers of people in the third world are rapidly approaching middle-class status, buying fridges and cars and so on
Not made in America fridges or cars. Those fridges won't likely be made by US companies in Asia, either. Not cars made by GM or Ford (trucks actually, as they hardly make cars these days). And those relatively poor global median consumers can't afford Teslas (now or in 20 years). And those emerging consumers aren't buying $45,000 US trucks either. The best case scenario for old US industry is to tread water, to not lose ground while sparring with China and all the other emerging market companies.
Most of the major emerging markets are going to come up ready to fight with their own champions, as China has (although not as potently as they've done it). The US old-line companies are at risk of getting their collective head punched in as a lot of new companies come up out of emerging markets looking to dethrone them. Mid-tier manufacturing will plausibly see a huge threat from emerging market companies pushing up the value chain, while high-tier manufacturing is absolutely going to take a direct assault from China (Boeing, Deere, autos, semiconductors, et al.).
As it pertains to the US, the only type of company I'd be interested in being over the next decade, is a tech company with (ideally) global use potential. Everything else is largely going to suck big time, either due to pricing power problems with USD erosion domestically (constant battle there), or intense competition problems overseas (and or market access problems in locations like China). An extra aside: along with particularly not wanting to be Boeing this decade, I wouldn't want to be Starbucks (just wait until you see what China does to them).
Anything manufacturing related I can see being shifted overseas. US labor is too costly compared to international labor. I think Deere and co already see the writing on the wall and are moving to diversify with autonomous capabilities. Software is not so easy to copy or we would've seen an iOS clone out of China that actually works as well as iOS.
Prices are going up at places that see labor as part of their Just In Time system, which turned out to be amazingly fragile in a number of areas.
McDs stock prices always goes up during economic recessions for good reason. In many places, they are the cheapest game in town. Even in enlightened places like Lausanne Switzerland, only a few kebab places could compete on cost.
If you'll pardon the analogy, McDonalds has been using morale as a dump stat but it turns out to be important lategame.
BRK should not be included in these lists because it is just double counting AAPL, BA, and a few other blue chip companies. It is 40%+ AAPL.
https://hedgefollow.com/funds/Berkshire+Hathaway
I agree with your conclusions though.
Silly, I know but I’ve always wondered why Microsoft was left out of the original 5
https://blog.zorinaq.com/i-contribute-to-the-windows-kernel-...
Even that goofball is now calling for FAAMG[0] (well, MAMAA) while (some) devs want to cling on to FAANG. Bit funny how Facebook's name change was apparently the trigger for him.
[0] https://www.cnbc.com/2021/10/29/cramer-new-acronym-to-replac...
I find it more useful to make my own assessments about what I could make elsewhere, and whether or not (all things considered) I want to continue with my current employer.
At least until lately. Washington is working overtime to raise taxes to California levels.
Microsoft minted millionaires of its employees like popcorn. In the 90s the newspaper estimated that 10,000 Microsoft millionaires lived in the area.
Such that the "campus" of other companies is a discrete thing.
How this fits for housing is that many new hires to Amazon don't have cars, and choose to live close to where they don't need them. Not really an option for the campus centric companies, where folks live further out and commute.
The current problem is Sound Transit does not recognize that the metropolitan area rings Lake Washington, and the sensible thing is to build mass transit around that ring. I don't think the ST people have ever looked at a map. Even worse, the old rail corridors that ringed the lake were deliberately destroyed.
Before Microsoft, for example, Kirkland was where you bought a house if you didn't have much money. Microsoft built their campus next door, and that was the end of cheap Kirkland real estate.
Housing prices were closely related to commuting distance from the campus.
Because Netflix pays Senior Engineers ~$500k/year in cash and MS pays Principal Engineers $300k TC?
E.g., I stopped using Netflix for several reasons: uninteresting content, obnoxious UI, and unhelpful/implausible recommendations system.
But I was always very happy with the reliability and performance of their streaming system.
Doo doo do do do.
PG tried calling it in 2007: http://www.paulgraham.com/microsoft.html
They really changed when Satya Nadella came in, however.
(Not to romanticize. Big tech has a smarmy evil these days. Ballmer just wanted to sell Windows and Office like products to big enterprises. It was less disturbing than donning their sith robes and joining the rest of big tech in trying to posses our incorporeal souls through massive amounts of data and 'nudges'.)
I think this is driven by an addiction of big tech to being 'relevant' and engagement is the metric that gives them that sweet hit of relevancy. Heaven forbid they just turn out a useful product for a reasonable profit.
Yes, but actually, NO. I know it's fashionable to bash Ballmer for being the stereotypical image of the late '90's corporate villain, pulled right out of Office Space[1], but he was also the one who got the ball rolling on what we today know as Azure and saved the Xbox division during the red ring of death and other major issues that plagued the Xbox 360 and cost Microsoft billions.
If he only cared about the enterprise stuff, he would have sold the Xbox division or let it sink at the first sign of losses, but instead he propped it up despite the massive losses. IMHO, he should get some kudos for that as Xbox is currently the only competitor to the Play Station (Nintendo isn't since they do their own thing).
"I am trembling, sat in front of Steve (Ballmer), who I love to death, but he can be an intimidating human being. And Steve said, 'OK, talk me through this,'" Moore added. "I said, 'If we don't do this, this brand is dead.'" If we hadn't made that decision there and then, and instead tried to fudge over this problem, then the Xbox brand and Xbox One wouldn't exist today."[2]
Ballmer also set the stage for Microsoft's entry into the cloud space in the early days before it was even called Azure, when he saw what AWS was doing.
"Steve Ballmer, the former CEO of Microsoft, initially resisted the idea of embracing the software services paradigm fearing that it would cannibalize Windows and Office business which was contributing to 80% of the revenue. Eventually, Ballmer was not only convinced but pushed Microsoft to become a fully-fledged cloud company through “we’re-all-in” war cry."[3]
Not saying you should like him or anything, but this guys really deserves more credit that he gets for where Microsoft is today (the good and the bad).
As a bonus, for added humor, here he is going crazy on stage about 'DEVELOPERS', like a hamster on cocaine. [4].
[1] https://www.imdb.com/title/tt0151804/
[2] https://www.vg247.com/rrod-xbox-360-ballmer-xbox-one
[3] https://www.forbes.com/sites/janakirammsv/2020/02/03/a-look-...
I guess some people found it funny, but everyone I work around as a software developer (not for native Windows/MS, mind) all found it incredibly embarrassing.
Same reason Cornell is typically left out of conversations about Ivy league schools.
It's just not that prestigious. Seeing MS on a resume is not as impressive as the others, and that's also reflected pretty clearly in the comp. It's not nearly as competitive to get a job at MS. The stock performance over the past decade has been pretty meh compared to the others.
MSFT’s ten year total return (1482%) is better than AAPL’s (1256%) or GOOG’s (815%), but not as good as AMZN’s (1629%) or NFLX’s (6250%). FB hadn’t IPOed yet ten years ago.
This is per a site called finbox.
Microsoft has some really cool stuff going on aside from .NET Core. Simon Peyton Jones has been there since the late 90s working on Haskell. Some notable ones for me: F#, F*, Z3 (SMT solver), C# and its ubiquity in products like Unity, WSL2, VS Code, etc...
What's up with Hololens 2? Any uptake? I would like to make a short video of the ultimate PC vs. Mac parody with two armies facing each other with one wearing the stylish MR glasses coming from Apple vs. the more typical-looking HMD Hololens for nostalgia's sake.
I have been in computing for a long time, and all of my jobs have been on PCs with Windows other than the weird Banyan Vines, VMS, Irix, and QNX systems I have worked with over the years. All my graphic artist friends had Apple products. I have had one job where I used Quickbooks on an old Apple Macintosh (1994), but not much else with it. I did put a deposit on a NeXT machine, but that fell through!
I have had a computer since 1977, a Commodore PET 2001 followed by a Vic-20. A Toshiba dual-floppy laptop that probably wouldn't fit under the seat in front in Economy Class seating. My first Apple was a Power Macintosh in 1995/96 (I think the 7200) on which I loaded Minix or some Minix derivative at a later date, a pen-based NCR 3125. Amazingly slim for the time, and I updated the drive in it a year or two later. My first real micro-electronics project. The Newton came out around the same time. The NCR 3125 was a 386 running PenOS that I eventually put Windows with pen support on. Various PCs I built (a RAID 0, Dual-Athlon anyone?) in the early 2000s running Blender3D. I donated $50 to support Ton's efforts to take it open source back then. And so on...Microsoft has always had the tech, but not the marketing or style of Apple. I currently use a Windows 10 gaming laptop, an old Lenovo running Kali, a 2011 iMac (1TB HD! 16 or 32 GB of RAM - I have to look). I just want tools I can use. The only computer/OS I was evangelical about was mh Amiga 1000 and 500!
I dunno, but every time I head over to that end of the island it seems pretty dead. There is the Graduate Hotel with the swanky Panorama Room bar on top that’s fun to visit (watch seaplanes land every half hour some days), the fancy cafe is open, there’s nice open plazas between buildings, it connects to the park overlooking the river (and FDR memorial beyond) … but it’s all so empty. I can’t imagine it’s operating at normal capacity.
North end is better anyway ;)
Microsoft, Apple, Netflix, Alphabet, Meta, Amazon, Nvidia, Adobe
Maybe I'm misguided, but what I believe made FAANG a thing is a strong software-focused culture that maintained a level of quality and innovation that usually gets lost at that scale, as was the case with Microsoft and things like IBM.
I prefer MANAAM, which is derived from the word “sleep” in Arabic.
Do doo do doo
In any case Im going to throw NAMMA out there too because I can say it easier and it leaves room for infinite M companies :)