Trading Fang (Faang) Stocks

An alternative way to trade or invest in popular stocks.



Hi Everyone. Today we look at Fang stocks.

The term Fang is an acronym given by Jim Cramer from CNBC. Originally based on four ‘next generation’ technology stocks, but later extended to cover five stocks, including the names of Facebook, Apple, Amazon, Netflix, and Google.

These stocks make up approximately 15% of the S and P 500 index, a considerable portion for just five companies.

We can see the performance of the Fang stocks since 2010 here.

The chart shows the relative returns against the S and P index which languished behind with an overall return of 215%.

The combined return of the five Fang stocks over the same period equated to over 2300%, a huge improvement on the index.

The focus of this video however is to demonstrate how we can improve upon these results, with particular focus on reducing the risks often associated with such stocks.

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Let us first look at one of the five Fang stocks in isolation, in this example we use Netflix.

Since 2010 the stock has risen considerably from approximately $8 to $486 per share, resulting in a $10,000 investment turning into almost $600,000, a staggering return of 6000%.

The concern I have however, is that a buy and hold strategy such as this would have seen periods of significant drawdown.

At one point the buy and hold investor would have seen an 81% drawdown, imagine how you would have felt with a $100,000 balance dropping to just $19000 in 4 months, and watching it languish there for over a year.

Other notable drawdowns were seen throughout the holding period, coupled with periods of stagnation.

This is simply not an approach that suits my personality, I don’t like large drawdowns or lengthy periods of stagnation where my money could be working for me elsewhere.

For those in my group, or those who have watched some of my videos, you will know my philosophy is all about minimising risk and maximising reward, unlike the Netflix position where we would have been exposed to maximum risk.

Let’s put this philosophy and simplistic version of my strategy onto Netflix and see how the strategies compare.

First we revisit the monthly chart. We know the Netflix stock lost 81% in late 2011, reaching $44 before dropping to $8.

There is however a simple method which would have limited the loss to just 18%. Regular viewers would be unsurprised to hear that the method used, is the mack dee indicator, using the weekly chart.

Here we see the peak price of $44, and here the low of $8, which provides the 81% drawdown.

The key to limiting such drawdown lies within the method I personally include, which is the cross down of the weekly mack dee. The next step is for a stop loss to be placed under the wick of the closing weekly candle. In this examp