FAANG-LESS
Late into the trading session today, the Fed signaled that they may raise rates sooner than initially anticipated.
The market had a hissy fit, in particular Big Tech stocks (as in the ones that have carried the market for the last 2 years).
AMZN was down 2%, FB down 3.6%, GOOG was down 4.6%, APPL down 2.69%.
DOES BIG TECH HAVE MORE TO DROP?
I have no idea.
But raising rates is pretty inevitable, so if these stocks got skittish on just the anticipation of higher rates then it’s hard not to wonder.
As you know, I don’t talk about individual stocks because we don’t invest in individual stocks.
But big tech IS responsible most for the Large Cap Growth allocation in our Financial Zen portfolios, which is the largest equity allocation across the board.
WHAT SHOULD WE DO ABOUT IT?
So what if Large Cap Growth drops as rates rise? Well, my friend that is why we have been rebalancing all along the way.
You see for the last two years, I’ve been trimming Large Cap Growth positions if they drift higher than 20% above their target allocation.
Then we reinvest those trimmings into the bottom of the barrel, which recently has been Emerging Markets.
Yes, that’s right. I have been deliberately selling the thing that’s going up the fastest and buying the thing that’s been going up the slowest.
WHY ON EARTH WOULD I DO THAT?
Because that’s how you make money in the market over the long-term!
I know that someday large cap growth will cool its jets to get back in line with it’s long-term average because right now it’s extremely overvalued.
And similarly, I know Emerging Markets will take off like a rocket because it’s extremely undervalued and well below it’s long-term average.
So you sell the thing that’s on fire NOW before it inevitably drops and you buy the thing that’s sucking wind NOW before it pops.
AND SO…
What if today was the start of a sustained downtrend for Big Tech and Large Cap Growth?
Well, it would be exactly what we we’ve been waiting for!
