An Apple a day?

Elon Musk buying Twitter recently has caused a lot of fluttering, especially because he’s laying off half the staff and has told the rest they can no longer work remotely.

What happens in the social media and tech world can impact your investments, as explained in this month’s topic.

In our recent article ‘Get your teeth into Faangs’, we talked about the big tech funds:

F = Facebook (now Meta)
A = Apple
A = Amazon
N = Netflix
G = Google (now Alphabet)

Many investors are tempted to trust them because they are such big names and have been successful for so long. However, these stocks are now falling back to earth.

Meta is the worst performer in the entire S&P 500 this year so far! The only person who’s made money out of it is Mark Zuckerberg himself.

In 2021, there were seven companies in the £1 trillion club. Now, there are only four, as you can see in this colourful infographic from Visual Capitalist:

Shrinking trillion dollar club

See how they are all falling off a cliff?

Apple is the only one which is not a ‘fresh air’ company; it sells actual things. This may be why it’s doing better than the rest. Although 20% down from its peak, it’s now worth more than Amazon, Meta and Alphabet combined. Warren Buffet trusts it too, and holds a large amount of Apple stock in his Hathaway Berkshire conglomerate.

You could argue that an Apple a day keeps the doctor away!

Before and after

As added reinforcement that you should think twice before only investing in the biggest companies, our friends at Dimensional have researched what happens to stocks when they grow large enough to join the ‘top 10’.

Before After

This graph shows swift growth until stocks reach the ‘top 10’; however, after that, they lag behind the rest of the market.

From 1927 to 2021, the average annualised return for these stocks over the three years prior to joining the Top 10 was more than 25% higher than the market. In the three years after, the edge was less than 1%.

Five years after joining the Top 10, these stocks were, on average, underperforming the market — a stark turnaround from their earlier advantage. The gap was even wider 10 years out.

Here are a couple of examples:

Intel posted average annualised excess returns of 29% in the 10 years before the year it ascended to the Top 10. But, in the next decade, it underperformed the broad market by nearly 6% per year.

Similarly, the annualised excess return of Google five years before it hit the Top 10 dropped by about half in the five years after it joined the list.

What this means to you

Most of our clients are peeved at the current market situation but not panicking. They know it’s risky to keep picking stocks or to have a concentrated portfolio. It IS wise to pick low-cost funds and diversify, then sit back and wait.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100