One of the more human aspects of financial markets is the love for narratives and, especially, pithy marketing slogans that come to encapsulate those narratives. Especially these days, narratives and slogans often come wrapped in a snazzy acronym to help make them memorable.

The first thing to say is that this has happened for a long time.

The oldest pithy marketing slogan we can think of is the "Nifty 50" group of companies that dominated the famously strong bull market that lasted from the 1960s into the early 1970s. The first we can actively remember is the "BRICs" acronym, coined in 2001, that plagued our early years in the investing industry.

But no doubt there were others. Crypto anyone?! Safemoon? Rocketcoin? It might seem as if investors are simply suckers for acronyms. But even more than that it would seem as if they are attracted to, well, attractive stories.

I am very sure that the Roaring 20s had their own proto-marketing slogans and it doesn't require too much digging to find the simple-yet-effective narratives at the heart of every famous stock market crash from the Tulip mania to the South Sea Bubble of 1720. ​

In a lot of ways this enjoyment of and attraction to narratives makes a lot of sense. It is all very human after all and most investors are, at least for now, still human. And easy, graspable plots are what we like and makes us comfortable. Narratives or stories are at the very heart of how we communicate.

But, as the above list of manias indicates, the problem with our love for narratives is they can - of course - just as easily mislead or obfuscate as they can teach . This doesn't happen just with finance, mind you, but it can cause very impressive dislocations and problems in the financial sector that can, of course, eventually spill into the real economy.

Not so long ago perhaps the most popular narratives out there was you really couldn't miss if you invested in so-called "FANG" stocks. Or the 4 large tech companies: Facebook, Amazon, Netflix and Google. Since then, others have added Apple to make it "FAANG."

(for purposes of clarity we will call it FANG as it was originally coined but mostly analyze it as "FAANG")

These companies were very large, very profitable and very, very popular. To get a sense of the scale involved, the FAANG topped out at over 16% of the S&P 500 and 33% of the tech heavy index NASDAQ.

To put that in perspective, that means 16 cents out of every dollar invested in the S&P 500 goes to just 5 companies. Obviously this means that 84 cents are then divided among ~495 other companies.

(the S&P 500 can have more or slightly fewer than 500 companies at any given time, don't get us started)

That is a lot....

This combination of size and tech-driven strength gave these companies an unassailable air. They seemed to outperform in bull markets and also to hold up well in downturns. Their combination of power-law driven profits, technological moats and huge network effects seemed like a can't lose proposition to many.

Over the last decade+ the FAANG stocks became the ultimate in all weather stocks. Everyone from sophisticated hedge funds to day traders came up with the same conclusion: if you have to own just one group of companies...

Well, here is how THAT is going:

Every single one of the companies except Apple has underperformed the S&P 500 this year (down around ~10% year-to-date at the time of writing).

Ouch. Where does this leave us?

A few lessons, so of which we have made before under different contexts:

• The first is simply: market leadership changes constantly.

The churn that occurs in the US economy (and therefore the US stock market) is simply incredible. It can often feel as if the same companies are top of the heap for decades at a time but the data tells a very different tale.

Of the five FAANG companies, only Apple is outperforming the market this year and all of the other companies are gradually falling out of the top 10 (by market cap) largest US companies this year.

A lot of ink has been spilled about the "unassailable" and even uncompetitive positions these companies hold in our economy and yet capitalism works its wonders nonetheless. New challengers and old competitors are constantly appearing and chipping away at financial fortresses that were supposedly impregnable.

This is all too typical.

Since 1980, only three companies (Microsoft, Walmart and General Electric) have held on to a place in the top 10 for longer than two decades.

For context, 20 years ago General Electric was the largest US company, a fact that seems beyond incredible now. Taking a look at the stock price of GE this century is enough to cause any long term investor's blood to run cold.....

Here is an incredible video of all this change over that time.

Becoming big is challenging enough, staying biggest is nigh on impossible.

• The second takeaway is: dispersion is BACK.

Dispersion means that the FA(A)NG stocks no longer move in lockstep. It is beyond bizarre, but this actually very disparate group of companies were highly correlated for years.

In other words, if you knew how one was doing, you likely knew how they were all doing.

These days, however, the opposite is true. Perhaps the most interesting is to compare Facebook (yes, yes, "Meta", sigh) to Apple so far this year.

Striking!

One 24 hour period earlier this year does a great job of fleshing out this dispersion. Meta's fourth quarter earnings disappointed in early February and the company saw its stock market value crater by $230 billion. This is the largest one-day market cap loss in U.S. financial history. The very next day, Amazon published its own results and the company's stock market value leapt $190 billion.

This was the single largest ever rise and the difference between the two companies' stock movements would be enough to buy many other large S&P 500 companies.

The key takeaway is not just that one company is doing less well than the other (though that is true). Rather it is the fact that the lens through which they are being evaluated has also shifted.

All the companies used to move very similarly because they were viewed as very similar: large, high growth technology companies that could and would reliably grow at a very steady rate for years to come.

Now two things have changed. Their growth has faltered. For instance, Netflix stunned markets earlier this year by losing customers rather than gaining them. But more importantly, the value of the type of growth that some of these companies deliver has changed fundamentally.

Investors care less about growth-at-all-cost and more about other metrics, like reliable profits. The ability to make money has replaced the ability to grow.

• The third takeaway is: once you lose the crown, it is very hard to regain it.

This seems sort of obvious on its face - competition is hard! - but comes up against a lot of investor resistance, especially psychologically. A lot of that is motivated by sunk costs or anchoring, two very human elements of our brains that make it very hard to walk away from a struggling investment.

The F(A)ANG stocks had a very good pandemic. They performed incredibly well through the latter half of 2020 and nearly all of 2021. Ultra low rates and recovering economic growth were perfect for them.

But as this newsletter has carefully tried to detail: those low rates are gone and, just as crucially, may not be returning. Be very careful if you are holding on and hoping that they will....

And as the earlier video makes crystal clear, once you drop off the podium, it is incredibly hard to get back there. Markets, consumers and most especially investors rapidly move on.

When this happens it can often be bruising for the company itself. Not every company leader, board or even employee is ready for different market with a different set of expectations. Many of these companies have used their steadily rising stock prices as a very, very attractive recruiting tool.

That may now change and it isn't the only thing for some of these companies either. Let us take a look at one in particular.

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