How Expensive Are FANMAG: Chart

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The combined market caps of the six tech giants – Facebook(FB), Aaple(AAPL), Netflix(NFLX), Microsoft(MSFT), Amazon(AMZN) and Alphabet(GOOG) – are bigger than the equity market caps of many countries. In fact, according to a chart published by RAFI Indices last month, only two countries have market caps that are higher than that of the FANMAG’s market caps. These countries are the US excluding FANMAG and China.

It is indeed shocking that equity markets of countries like Germany, the UK, Canada, etc. are lower in value than these US tech champions. Germany for example is an engineering powerhouse with world-class companies including auto giants like BMW, Benz, Porsche, etc. and chemical leaders like Bayer and BASF. But the market values all these companies and others in the entire country lower than FANMAGs.

To put the numbers in perspective, at the end of August the total market cap of all German companies listed on the Frankfurt Stock Exchange was 2.23 Trillion Euros. As of market close on Friday Apple’s market cap was $2.4 Trillion.

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Source: RAFI Indices via BFM

Disclosure: No Positions

Bulls, Bears And The Benefits of Long-Term Stock Investing: Chart

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Investing for the long-term is the best investment strategy as the stock market traditionally goes higher over the long-term but tends to be volatile in the short-term. Over the many decades from 1926 thru 2020, S&P 500 has had many bull markets than bear markets. In fact, many bull markets were longer than bear markets. So an investor that held stocks patiently over both the bull and bear markets was rewarded well.

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Source: Bulls, Bears, and Long-Term Benefits of Stock Investing by Ginnie Baker, Beaird Harris

From the above article:

From 1926 through 2020, the S&P 500 Index experienced 17 bear markets, or a fall of at least 20% from a previous peak. The declines ranged from —21% to —80% across an average length of around 10 months.

On the upside, there were 18 bull markets, or gains of at least 20% from a previous trough. They averaged 54 months in length, and advances ranged from 21% to 936%.

Related ETF:

  • SPDR S&P 500 ETF (SPY)

Disclosure: No positions

The Best and Worst Developed Markets From 2001 To 2020: Chart

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One of the smart ways to diversify globally is to invest in multiple countries. With this approach it is possible to capture the top returns from one equity market and reduce the impact from a poor or worse returns from another market. Just like the return of various individual companies, the equity returns of individual countries also vary from year to year and also in an year. For instance, the top performing country in one year might turn into the worst performer the following year. Since predicting which country will yield the top return next year it is wise to avoid picking a potential winner and instead spread one’s funds over many countries.

The variance in returns among countries is show with the year-to-date returns of countries in Latin America and Canada. The YTD returns of select indices are as follows:

  • Argentina’s Merval: 44.81%
  • Brazil’s Bovespa:  -4.82%
  • Canada’s S&P/TSX Composite: 17.03%
  • Chile’s Santiago IPSA: 2.13%
  • Mexico’s IPC: 15.97%

Someone that invested purely in Latin America’s largest market – Brazil, would have missed the decent returns from other countries shown above.

The top and worst developed markets based on annual returns from 2001 to 2020 are shown in the chart below:

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Past performance is no guarantee of results. In USD. MSCI country indices (net dividends) for each country listed. Does not include Israel, which MSCI classified as an emerging market prior to May 2010. MSCI data © MSCI 2021, all rights reserved.

Source: Which Country Will Outperform? Here’s Why It Shouldn’t Matter, Dimensional Fund Advisors LP

In the 20 year period, the US ranked as the top performer only in one year. It is not surprising that Italy has the worst annualized returns at just 0.6%.

Australia and New Zealand had higher annualized returns than major European markets like the UK and Germany.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • iShares MSCI Germany Index Fund (EWG)
  • iShares MSCI Canada Index Fund (EWC)
  • iShares MSCI Australia Index Fund (EWA)
  • iShares MSCI United Kingdom Index (EWU)
  • iShares MSCI Singapore Index (EWS)

Disclosure: No Positions

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On the Dangers of Market Timing: An Example

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I have written many time before on the futility of market timing. Since markets tend to go to extreme levels on both the upside and downside trying to get in and out at tops and bottoms will lead to worse outcomes. The wise strategy is to simply stay in the market regardless of volatility and focus on the long term.

The following chart shows the dangers of market timing:

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Source: Principles of Investing, Morning Star

A $1 investment in stocks 1926 would have grown to $9,244 in 2019. But missing the best 51 weeks during the many decades between those years would have left with a growth of just $21.47 !.