Think You Can Buy FANG Stocks and Hold Them Forever? Think Again.

First, it was the Four Horsemen of the Nasdaq, then the Four Horsemen of the Internet, and now it is the FANG Stocks. What is it with the investment world and grouping stocks in groups of four?

Back in the ‘90s, Cisco (Nasdaq: CSCO), Dell, Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT) were considered the Four Horsemen of the Nasdaq. The four tech bellwethers were flying high in the late ‘90s and investors flocked to them. With good reason too. CSCO gained over 1500 percent from early ’97 through its high in March ’00. MSFT gained 633 percent from October ’96 through December ’99. INTC gained 543 percent from October ’96 through August ’00. Dell was the laggard of the group as it only gained 440 percent from October ‘97 through December ’99. Dell is also the only one we can’t chart since it was taken private in 2013. With that in mind, we will focus on the other three. We can tell you that the highest closing price for Dell in December ’99 was $52.19 and it never traded anywhere near that level again and on its last day of trading, October 29, 2013, it closed at $13.73.

Let’s take a look at what happened to the three stocks that have traded uninterrupted since 1997 – Microsoft, Intel and Cisco. We see on the chart that MSFT fell 66 percent from its high in December ’99 to its low in December ’00, and it was the best performer of the three during the bear market from late 2000 through early 2003. Even though it didn’t fall as far, the stock was stuck between just under $13 and just below $30 for 13 years, from 2000 until 2013. The stock finally broke out again in late 2013, but it took until mid-’14 for the stock to eclipse that high from December ’99. I don’t think that is what buyers had in mind when they bought it above $30 in 1999.

Intel fell 83 percent from its peak in August ’00 to its low in October ’02. Believe it or not, that didn’t make it the worst performer of the three of the Four Horsemen we are looking at here. Like MSFT, INTC moved in a range for an extended period. From October ’02 through April ’14, the stock traded between $9 and $24 and it has yet to come close to the $50 mark.

Cisco is the last of the three Four Horsemen of the Nasdaq we will look at. I saved it for last because it was also included in the Four Horsemen of the Internet stocks since it is a networking stock. While it was the biggest gainer of the three, it also fell the most in the bear market. It lost 90 percent of its value from March ’00 through October ’02. The stock was trading above $65 at its peak, and it hasn’t traded above $35 since 2000. Like the others, it got stuck in a pretty wide range from ’02 through ’16.


The Four Horsemen of the Internet

Shifting our attention to the Four Horsemen of the Internet, as I said above, Cisco was one of the four with the other three being Oracle (Nasdaq: ORCL), Sun Microsystems and EMC. Of the four, only Cisco and Oracle are still open for business. EMC was bought out by Dell and Sun Microsystems was bought out by Oracle. Sun Microsystems used to trade under the ticker symbol SUNW and may be the epitome of what an internet bubble stock looked like.

Because they were both acquired, I can’t draw you a chart of EMC and SUNW, but what I can tell you is that SUNW opened 1997 trading at $25.69 and would eventually trade as high as $253 in August 2000. By the end of 2002, the stock would close at $3.11.

I didn’t have as much luck finding specific prices on EMC; I can tell you that the stock opened 1996 at $15.38 per share and after splits and adjustments, it closed at $218.50 in 1999. During my research I also learned that from January 1, 1990 through May 2, 2000, EMC gained 103,000 percent. That was the greatest gain in stock price for a decade of any stock listed on the NYSE—EVER. The following quote is from a press release from EMC on May 3, 2000

“During the 1990s, EMC achieved the highest single-decade performance of any listed stock in the history of the New York Stock Exchange. From January 1, 1990, through the close of trading on May 2, 2000, EMC stock has risen more than 103,000% — more than any U.S. publicly traded company over that time period (based on the closing price of $139.6875 per share on May 2, 2000).”

At the end of 2002, the stock was trading at $6.14, and it didn’t hit the $20 mark again until 2010.
That leaves us with ORCL. The stock hit a low of $2.75 in September ’98 and proceeded to gain 1433 percent to a high of $42.16 in September ’00. From that high in September ’00 through the low in June ’02, the stock lost 84 percent of its value to a low of $6.58. It took until December ’14 for the stock to get back above $42.

Are the FANG Stocks Going to Crash?

It is hard to say that the FANG stocks are going to crash, but one or all could certainly see similar fates to what the Four Horsemen of the Internet and Four Horsemen of the Nasdaq saw. All four of the Nasdaq gang were tech stocks, and obviously the four internet stocks were based on the burgeoning technology of the time.

The FANG stocks have common traits as well. Facebook (Nasdaq: FB) is a social media/entertainment stock and has gained 900 percent since its September ’12 low. Amazon (Nasdaq: AMZN) has gained over 3000 percent from its low in November ’08. It is part retailer and part entertainment company. Netflix (Nasdaq: NFLX) is all about entertainment, and the stock has gained 2440 percent from its low in August ’12 to its recent high. Google/Alphabet (Nasdaq: GOOGL) is a little different than the other three as they are a tech company with social media, communications and hardware operations, but like the other three, it is founded mainly as an internet based company. The stock has gained 715 percent from its low in November ’08.

The FANG stocks have seen meteoric rises, just like the other two groups did, but there aren’t any signs that they are ready to slow down either. Of course, the investor that bought SUNW at $253 didn’t think there were any signs of problems at the time either. The people that bought CSCO at $40 in late 2000 probably thought they were getting a bargain after the stock had been up to $65, but here it is 17 years later and the stock hasn’t managed to hit $40 again yet.

The point is, if you are going to buy these stocks after such huge runs, have an exit plan. I don’t care if it is selling after a 10 percent or 20 percent drop, or if it drops below the 200-day moving average. Whatever your comfort level is, have an exit plan. Too many investors try to time their entry into a stock, but don’t have an exit plan and then hang on as the stock falls. Remember, if a stock falls by 50 percent after you buy it, it now has to double to get you back to breakeven.

One last thought on these groups of stocks. Perhaps we should stop grouping them into groups of four. In the Japanese culture, four is considered an unlucky number. The pronunciation of “shi” is very similar to word for death and thus it is considered an unlucky number. How about we stop with the Four Horsemen, FANG and BRIC groupings.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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