August 27, 2020 Advanced Investing Personal Wealth The Rational Reminder Podcast Episode: 113: Mega Cap Growth Stocks (FAAMG, TSLA), RESP Withdrawals, and a Golden Portfolio The hype to invest in high-cap tech companies is deafening. In this episode, we share what you need to know before buying FANG company stocks. Although FANG is the popular term, our analysis includes Facebook, Apple, Amazon, Alphabet, Tesla, and Microsoft — so it’s closer to the less slick-sounding FAAATM. Before we dive into that, we talk about the show’s books of the week and how ETFs and mutual funds have been performing compared to July of 2019. We then set the scene for how FANG businesses fit into the market-place and how we measure their success by their size and relative price. As these are the companies that are changing the fabric of society, we discuss how it is fitting that companies like Apple represent a whopping 6% of the US market. To put this in historical context, we explore AT&T’s past and how market-share tends to reflect the level of innovation introduced by businesses. The upshot of this is that the huge market-share that FANG companies have carved out is not as new of a phenomenon as it may seem. We then unpack how stock prices are valued and the impact that expectation has on stock valuation and returns. After talking about why we might be overpaying for growth stocks, we commiserate over the pain of being a value-titled index investor at times when large-cap growth stocks dominate both the discussion and the marketplace. We round this section by touching on the US stocks’ performance compared to US treasury bills, whether you should be looking for the next Amazon, and why you need to quantitatively look at a company’s business quality. From FANG we jump into our planning topic of the week — a review of the withdrawal rules for the Registered Education Savings Plan (RESP). Near the end of the episode, we share some bad financial advice for the week courtesy of TMZ and the idea that you should start your portfolio with 100% gold. Tune in to hear more from the world of rational investing. Watch this conversation on the Rational Reminder YouTube channel Subscribe to the Rational Reminder podcast Key Points From This Episode: From Blackstone to Bloomberg, hear about the books of the week. [0:01:23] Why success is often driven by luck and not by ‘being the best.’ [0:06:19] Listener feedback on Assuris — the insurance industry’s insurer. [0:07:32] Comparing Canadian ETF and mutual fund performance from July 2019. [0:08:52] Introducing our investment topic; should you add FANG mega-caps to your portfolio? [0:12:37] Measuring the unreal success of the top FANG companies. [0:14:28] Contextualizing Apple’s market-share within US history. [0:16:44] Exploring AT&T’s history to unpacking flaws behind the ‘this time, it’s different’ line of thinking. [0:18:07] How developing life-changing technology can earn you high market share — until it doesn’t. [0:22:19] Understanding mega-cap stock prices and factors to consider before buying. [0:25:25] How high market expectations are linked to low stock returns. [0:27:59] The connection between paying low prices for higher stock returns. [0:31:04] Rational versus irrational views on high-growth stock prices. [0:32:13] The pain of being a value-tilted investor at times when large-cap growth stocks outperform. [0:35:36] How most US stocks trail underperform compared to US treasury bills whether you should be looking for the next Amazon. [0:37:43] Business quality and how the relative expensiveness of growth stocks is bigger than ever. [0:41:01] We dive into your planning topic on the Registered Education Savings Plan withdrawal rules. [0:45:12] What to consider before coming up with an RESP withdrawal strategy. [0:47:57] Our bad advice for the week; become the Wolf of Wall Street by reading TMZ and starting your portfolio with 100% gold. [0:51:01] Links From Today’s Episode: Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Episode 100: Prof. Kenneth French: Expect the Unexpected — https://rationalreminder.ca/podcast/100 ‘Persuasive evidence of market inefficiency’ by Barr, Rosenstein, and Lanstein — https://jpm.pm-research.com/content/11/3/9 ‘The Cross-Section of Expected Stock Returns’ by Fama and French — https://www.ivey.uwo.ca/cmsmedia/3775518/the_cross-section_of_expected_stock_returns.pdf ‘Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach’ by Piotroski and So. — https://academic.oup.com/rfs/article-abstract/25/9/2841/1589567?redirectedFrom=fulltext ‘Do Global Stocks Outperform US Treasury Bills?’ by Bessembinder et al. — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3415739 ‘ Wolf of Wall Street Get Schooled in Day Trading Flip Stocks, Make a Bundle w/ Ease!!!’ — https://www.tmz.com/2020/08/11/day-trading-stock-market-wall-street-learn-tmz-bundle-course/ ‘Why not start with 100% gold in your portfolio?’ — https://www.wealthprofessional.ca/investments/alternative-investments/why-not-start-with-100-gold-in-your-portfolio/332589 Episode 111: Gold, Insuring your Insurance, and Bank Sales Pitches — https://rationalreminder.ca/podcast/111 Share: Facebook Twitter LinkedIn Email IIROC AdvisorReport
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