Wow! I received a ton of interesting feedback from you guys on the informal “FAANG” poll I put out Tuesday.
Indeed, some of you are still holding (and buying) some or all of the FAANGs.
Some of you reported selling your FAANG holdings in the last year or so, with varying degrees of success.
And there were a number of you in the “never touched them” category, for various reasons.
Thanks so much to those who wrote in! And if you didn’t have a chance yet, the invite’s still open: firstname.lastname@example.org
Now, I promised on Tuesday to share with you an analysis of my system’s April 2018 sell signal on Facebook. And to give you my system’s current signal (i.e. buy/sell) on each of the FAANG stocks.
I’ll get to that shortly.
But first, I think there’s a lot to be learned from the responses I received.
Wise Owls, You Guys
Every successful investor I know has a sell discipline – some signal they follow that, when flashing, prompts them to close out their position.
And so I was quite pleased to hear many of you describe both when and why you sold a FAANG holding recently.
Kevin M. explained, “I used to own AAPL, FB and NFLX, but sold them when they turned ‘red’ in the TradeStops alert system.”
Music to my ears, Kevin!
Folks, TradeStops is an excellent resource for data-driven investment decision-making.
And it sounds like Kevin is using the system to establish trailing stops– a simple technical indicator that objectively tells you when it’s time to sell a position.
Well done, Kevin. That’s a perfectly valid sell discipline to use.
Here’s the thing…
The specific sell discipline you follow isn’t as important as having a sell discipline (and of coursing following it with discipline)!
That’s one of the nuggets of wisdom I’ve preached about in my Secrets of a Seven-Figure Trader program.
Now, I shared with you three of my simple sell signals last April…
One triggers when a stock has fallen 20% from its one-year highs.
Another triggers when a stock’s six-month trend turns negative.
And the third triggers when a popular short-term momentum indicator (the RSI) remains in a weak state for 15 consecutive days.
Last April, shares of Facebook (FB) were trading for less than they had been six months prior – meaning the six-month trend had turned negative.
So that was the Facebook sell signal that prompted my discussion.
And had I owned Facebook at the time. That’s when and why I would have sold it.
But I didn’t own Facebook at the time. And that brings up another important lesson…
You don’t have to swing at every pitch.
Warren Buffett said that.
But a number of you also showed evidence of following that philosophy – the idea that you don’t have to have an opinion, or position, on everything.
Instead, you can – and should – participate only in opportunities that meet your criteria. And you can pass on everything else.
Barry K. explained, “I don’t hold any of the FAANG stocks because none of them appear to be under accumulation.”
See how that goes?
Barry’s criteria is accumulation… The FAANGs aren’t being accumulated… So, Barry isn’t buying.
David D. also explained why the FAANGs don’t meet his criteria…
“I don’t invest in the FAANGs, or any other company that gets a lot of media attention. All the hype tends to boost valuations beyond what is reasonable. But I would not short these companies either, as who knows how long the foolishness could last? Better to just look elsewhere.”
I couldn’t have said it better myself!
David D. wisely realizes that just because you don’t want to buy something… doesn’t necessarily mean you should short it. And he poignantly points to the reason for that a la: “markets can remain irrational for longer than you may remain solvent.”
For both Barry and David, simply passing on the FAANGs was a fine decision. And unless the FAANG meet your criteria… you should be OK with passing on them, also.
And speaking of “hype,” I was pleased to hear a number of you view the media’s pump-up of the FAANGs with skepticism.
Kim C. wrote, “I’m not a fan of these oversized companies that have been able to monopolize parts of the market for several years now.”
Good point, Kim. These companies are huge!
I actually pointed this out last February in “Peak Amazon.”
From that piece:
I know it may seem like there’s no end to Amazon’s success… no bottom-of-the-well for its market and earning power.
But history shows there’s always a limit to how much of the pie one company can claim.
Over the last 40 years, there have been only 12 U.S. corporations able to grow their market cap to 2% or more of the total market.
IBM topped out at 4.4% of the total market in 1985 (the highest percentage of total market cap claimed by one company, since 1980).
Apple maxed out at 3.2% in 2012.
And Google hit its wall, at 2% of total market cap, in 2007.
Where’s Amazon today?
Amazon’s (Nasdaq: AMZN) stock is up since I wrote that. But these things take time to play out.
As I said then, I don’t expect Amazon’s stock to roll over and die tomorrow (and that’s why shorting it can be dicey).
And I still think that anyone buying Amazon today is buying closer to the top than the bottom… and that the stock’s next 10 years will be far worse than its last ten.
Anyway, I digress…
Secrets of a Seven-Figure Trader
I designed my Secrets of a Seven-Figure Trader program to turn everyday folks into disciplined investing machines by sharing simple investment systems, along with all the lessons and wisdom I’ve picked up over the years.
That includes “sell” strategies for dicey markets… like the one we’re experiencing currently.
“What are my sell strategies saying about the FAANGs, now?” you ask.
They’re all saying “sell.”
The first of these sell signals hit Facebook’s stock. That’s what prompted me to write My (Technical) Take on Facebook back in April.
And although the stock made a push higher into late summer, shares are now 14% lower than they were on the day of that sell signal.
The other guys (in chronological order)…
Shares of Netflix (NFLX) triggered my sell signal on July 31, 2018. The stock is now around 5% lower (after being down a heftier 31% at their recent lows!).
Shares of Google (GOOG) triggered my sell signal on September 20, 2018… and are now down close to 8% since.
Shares of Amazon (AMZN) became a sell on October 25, 2018… and are down around 7% since (after falling a heftier 23% at their December 24th low).
And finally, shares of Apple (AAPL) triggered my sell signal on November 15, 2018 and have fallen 20% since.
Folks, sellinga stock isn’t as fun or sexy as buying it.
But to achieve true success at investing, you must be able to sell a stock when the trend turns.