EP200214 RichOnPlanning - PLANNING MATTERS - FAANG STOCKS W Allison Ostrander - Simpler Trading

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And welcome into the program. This is Rich on Planning, Planning Matters Radio. I am Peter Rochon, founder at Rochon Planning. We are a local, independent, fiduciary financial investment and retirement planning firm, and the Rochon Planning Podcast is intended to keep you informed and up to date on the news, the information, and the strategies that you can use to help achieve your financial goals. We always encourage you to subscribe to the podcast on your favorite platform, or give us a call if you've got questions, something that you'd like to ask personally, or something that you'd like addressed on a future edition of the podcast. You can always call at 919-300-5886.

Or you can visit us online, richonplanning.com. We often have special guests join us on the program, and we are now privileged to be joined by a very special guest, Alison Ostrander. She is going to be talking to us about the FAANG stocks, and really the tech sector of the economy. Alison, welcome into Planning Matters Radio. Thanks so much for having me.

We appreciate the time. Now, the FAANG stocks, as they're known, kind of the big five of the tech sector, they've really had a lot of influence over the market in recent years, and I've even heard reports that those stocks alone have accounted for a majority of the growth of the overall market. Yes, absolutely. If you had invested in all of the FAANG stocks, both of them have seen close to a 200% return within the last five years or above that. They've been a great investment for those of us that have been able to jump into it and hold on. This is companies like Apple, Amazon, Alphabet, Facebook, Netflix, Google. These stocks, though, are we seeing a repeat of what happened in the tech bubble? If people had bought those some time ago and continued to hold them through that appreciation, yes, they appreciate it, but now wouldn't they be overweighted to some extent?

Well, I think there are a few things. First, I'm very much a technical trader, so I like to go off of my charts. Right now, all of these symbols are still in bullish timeframes.

I would say the weakest one of the FAANG stocks is Facebook. On a daily chart, it's still in consolidation and actually still has some daily resistance levels that needs to get above. But when you step back and look at a weekly or monthly timeframe, it moved down recently just within the last few weeks, went right down, tested a support level, it's held, and now it's starting to bounce back up.

So until we really start to break these weekly and certainly these monthly support levels, I'm still going to remain bullish on them just from a technical standpoint. The other thing I want to address is I do think there's a difference between the tech bubble that happened in the late 90s, early 2000s, and what we're seeing today. In the late 90s, early 2000s, it was a relatively new industry, if you will, on the tech side with computers, with phones, and all this other technology that continued to come in. And I think at the time, investors weren't quite sure what good was going to come of that data or how it was going to be used or the advertising or anything else around that. So I think overall these companies were still trying to find a footing and figuring out how to take all the information that they're gathering and be able to make it profitable for their company. Now that we're years ahead, right, and we've certainly established smartphones and computers and- Selling user data is the profit.

Exactly, exactly. And certainly gathering it or just understanding how a consumer works to where even if they don't necessarily sell the data, they know what ads to put into their programs and to their websites and to their searches. And so because of that, I think there's a lot more profitability to be had within the companies around their information and around the new technology that they can take to release to where it's not, and to me at least as of right now, it's not showing any signs of a tech bubble that's going to explode and then we'll just see all of these come rushing back down to the bottom of the chart. And then on Facebook, let me stick to that one for a moment. Obviously Mark Zuckerberg has already been called into question for Facebook's practices of selling user and consumer data and Facebook executives, Mark Zuckerberg himself, I believe just recently stated that they've just about reached maximum capacity for displaying ad space before their users, I guess, tire of it, which limits their capacity for generating new revenue, correct?

Yes, it does. And I think the other thing that slightly hurts Facebook is that it is mainly a social media platform. Now they've tried to expand their base. They've certainly invested in things like the Oculus, which is a virtual reality kind of simulation thing to try and help find other sources of revenue. But being mainly a social media platform, they need to stay on top of it. And as we see, but certainly with the younger generation, it's easy to hop onto one thing and then immediately hop onto something else, especially as a kid, you know, you don't necessarily want to hop onto the same social media platform your parents might be on and Facebook.

So it is great. A lot of the older generation are the ones that currently use it. So they've made smart moves like buying Instagram, for example, you know, having a footing in that, but they're going to have to stay on top of it like that soon. I'm sure Instagram will start to go off and the next version of social media like TikTok will be the main one that people use. So I'm always a little bit more hesitant on the social media stocks themselves. Facebook definitely has a better holding than some of the other ones like Snapchat, for example. But it still makes me hesitant on investing long term in that. That's why typically, I'm mainly an options trader. And for Facebook, I keep my option trades shorter dated just to take advantage of the shorter term moves.

Something like Amazon or Netflix, I don't mind jumping into longer term trade positions or potentially even shares and playing that for a longer five year run to the upside. I have heard that Facebook is exploring other options, other avenues for generating revenue, for instance, maybe providing some infrastructure, fiber network and basically the hardware behind providing service to institutions or municipalities. So I think there are explorations into other avenues, if not already implementation into some of those. But I do believe as looking exclusively at the social media aspect of it itself, you're probably right. And that's something that seems to evolve very quickly. I mean, we went from not having these cell phones at all two decades ago to Facebook being almost a daily, if not hourly institution for many users. But now it's evolving past that.

Yes, absolutely. And they definitely have the right business to be able to try and find other sources of revenue. Because I think they realize too that it's going to be hard to keep users on and especially in places where younger users are trying to go onto their platform when there are so many other ones out there and ready for them to use.

Right. Ones that aren't necessarily connected to where their parent can jump in and check out their profile or something like that. And certainly as a teenager, I remember back in the day, I loved my privacy. So I'm sure there are some of those things where Facebook are going to have hurdles and they're trying to address them now, thankfully. But that's why personally for me, it still keeps me slightly more on edge on Facebook compared to some of the other FAANG stocks out there. When you look at these FAANG stocks, I mean, yes, we've seen a meteoric rise and they certainly are wildly utilized and popular, but they still don't seem to be offering as stable or predictable or necessary product or service as, say, what the top stocks were maybe just 20 to 25 years ago. Your Cisco's, your General Electric's, your Exxon's, things that GE Procter and Gamble that provided hard goods services that people use on a daily basis, much like we do consume some of this technology today. But it seems like that could change very quickly to a different company with a fickle consumer market.

I think before it felt like that. And there are certainly new companies that will come out that could end up having that edge. But I think the entire way that consumers consume things, if you will, has changed too. So instead of going just for those products, something like Amazon, for example, they provide a whole platform readily available for you to get that. They also have the web services.

Of course, they have their own user data. And so when I look at a company like Amazon, for example, which is one of the FAANG stocks, that to me, even though it's seen a huge move to the upside, one of those trillion dollar companies, I feel very much like it bullish. Recently on a monthly timeframe, back in 2018, we saw a bit stronger of a pullback in the market and Amazon itself. But when you look once again at that longer timeframe, it was actually a much needed pullback. As many of us traders know, you know, you don't see a symbol move straight up.

Now, Tesla might have seemed like it did that recently. But even that had a pullback, right? And so things go up and they go back down to test support. And on a monthly timeframe, we were very much overextended. We needed a pullback to support.

We finally got that at the end of 2018. It held support, we consolidated, it allowed our indicators, our momentum, our exhaustion kind of to reset itself. And now to me, it's actually giving quite a few signals currently that show it's about to go back up into a bullish trend.

Let's talk about those two for a moment. I mean, Tesla, is it problematic that they have not shown profitability in their model to this point? Certainly it is, but I will say it does seem like a lot more IPOs that have come out recently don't show profitability and yet investors still feel the need to buy in it. So, you know, on a business aspect, that certainly concerns me some, but from a trader's aspect, it doesn't concern me as much as, especially if I'm not in it as a long-term share trade, but more in an options trade. I'm not as concerned about that because investors seem to love Tesla. And so for that reason, I'm certainly okay with continuing to follow the trend, at least right now to the upside.

I do think that short-term, there's still going to be a bit more consolidation and pullback, but the longer-term trend still remains bullish. But again, if you talk technicals, 15, 20 years ago, a company that has dumped as much money in as Tesla has in R&D and research and marketing and everything they do, without having anything for profit, that company may have been out of business at this point. Tesla is simply floating based on its ability to remain popular and for people, new investors to continue dumping money in? I think that is a part of the reason, but I do also think they have an early edge on their market, which is the electrical car, right?

Certainly we're seeing a whole global phenomenon with concerns about global warming, with concerns about the environment, certainly with pollution levels. And so Tesla being one of the early people in and having the stability of staying in, even though in terms of profits each quarter, we're not seeing it, the fact that they've been able to remain a household name is a good sign that they might be Netflix, if you will, of their sector, where they were able to jump in early, they were able to get consumers eyes on them. And so even though all these other companies are trying to catch up with electrical cars, Tesla with the name brand alone still might be the go through that many people find themselves trying to buy, especially when they're trying to make more affordable models to where the more average consumer can jump into a car like that. Well, let's talk about Amazon.

I mean, certainly popularity, it's the tale of two different extremes there. When it comes to discussion about the taxes that this corporation pays, about the effect on the jobs market that it has in the press, it doesn't seem to be highly favorable news there. But it is also actually widely used and utilized by millions and millions of Americans and putting high strain on the retail sector actually as a result of how many people are going to their purchasing decisions through Amazon or similar companies. So how does that weigh in the outlook for the company?

Well, I think longer term, it's going to remain in the bullish trend, because as you mentioned, so many people go to it to use it. And it has a lot of different uses, right? You might go to it strictly for the shopping, the two days, you know, shipping and everything like that. You might use it for me for an often, for example, I have same day delivery on some items. So with a newborn child myself, I find it extremely useful to be able to order diapers and have them dropped off at the door without me having to take her to the store, and figure out how to do that or to get formula or anything else that I might need for her.

And so those aspects are extremely useful. But they also of course, have their streaming platform. They also have, for example, Twitch that they bought a gaming streaming platform, which really entices the youth to not only jump on with that. And the last thing I really like about Amazon is that they've made this all interconnected.

So with their prime membership, you do get the streaming, you also do get the two day shipping, you get benefits from their Twitch stuff. And so that to me entices people to stay on it. I do think that they are going to run into some issues in regards to the workforce. You know, we've heard conditions about, you know, people in the warehouses and the distribution centers that do not sound good, right?

They need breaks, they need probably better pay, they need to be able to have some health benefits there as well. So I do think that's going to be addressed in the future. Honestly, I don't think it's going to deter people from signing up for a prime membership and keeping it.

No, I'm certainly a prime member and don't plan on changing that any time. But the poll of public opinion does weigh on some of these companies and that can change. It is fickle. But all in all, time to go or room to grow for the FAANG stocks? I still think there's room to grow.

Like I said, Facebook's still kind of the easiest ones for me, if you will. But a lot of these symbols, Amazon, Netflix, Apple, they've had healthy run ups. They recently saw some great pullbacks to support. And now they're showing signs of going back into a bullish trend. I am concerned, slightly shorter term with companies like Apple, for example, in the FAANG stocks, just because they do have a lot of dealings within China.

So the whole coronavirus is kind of concerning. And that, you know, does make me have a little bit lighter risk, right? Lighter capital in some of these positions as I'm starting off with them for, you know, leaps or shares themselves. But like I said, until they really start to bring support, I'm not going to fight the technicals on this. And a lot of them are showing signs of taking back to the upside once again. So as far as the sector, you feel pretty positive.

You are paying attention, though, more to total market and systemic risks. Absolutely, yes. All right, Allison Ostrander. And we appreciate your time. Allison, where can people find out more or get more of your information? Yeah, they can find me at Simpler Trading on Twitter or on our website, simplertrading.com. I am usually in the options room, a part of the options membership there.

I hold classes. So you can find me in the trading room there each day or on the website itself. Again, Allison Ostrander and Simpler Trading, we appreciate your time. Thank you for being here and providing your insight.

Thank you so much. Well, if you are in the market and investing for growth, it's always worth paying attention to the hot stocks and the companies that are doing well. And certainly the FAANG stocks Facebook, Apple, Amazon, Netflix, Google, those have led the way over much of the last decade and accounted for a lot of the growth of the overall market and certainly many mutual funds that include those as part of their core components. Now, you always have to keep things in balance. You always have to keep things in perspective. Diversification is key, as we certainly saw back in the tech bubble in 2000. A large part of the reason why so many lost so much is because they had become overweighted in the tech sector specifically. So could we be seeing the same thing here? Maybe it's a different time. Maybe it's a different model for these businesses.

And certainly there is a lot to say that they have more room to grow, but also something to always be mindful of and to be cautious of. If you'd like to look at your portfolio and make sure that you are in proper balance, if you'd like to talk about your goals, about your risk tolerance and really drill down on some numbers in your portfolio, how much are you positioned to gain? How much do you stand to lose? If the market continues to go up or if we have a downturn, pick up the phone. Feel free to be in touch with me at Roshan Planning.

Again, I am Peter Roshan. I am an independent fiduciary financial investment retirement planner. Would love to hear from you. Richonplanning.com or give us a call at 919-300-5886, 919-300-5886. And we also would certainly appreciate if you'd like and subscribe to the podcast. We'll talk to you next time on Rich on Planning, Planning Matters Radio.

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