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How the mighty have fallen! (FAANG & BAT)

It wasn't too long when tech was all the rage.


I remember reading a book on how FAANG (Facebook, Apple, Amazon, Netflix, Google) and BAT (Baidu, Alibaba, Tencent) will be changing every fabric of society just two years ago.


The name of the book escapes me, but I remember clearly how the book has very vivid descriptions about how society structure might even be related to these technology firms. For instance, the rich might have Apple products in every part of their life (Apple car, Apple home etc) and it will become a symbol of their standings in the society. So instead of terming the rich the upper class, you might name them the "Apple class".


Besides being weaved into the fabric of the society, these technology firms were said to be representations of the ideologies of how AI should be manifested in the East and West. The development of AI in the West will be one which has privacy at its core while the East is one which throws privacy to the wind. In the mid future, these ideologies will cause the end product of AI to be vastly different and we are going to have two different versions of AI which can pull the world in different directions. It's then unclear which will be the superior one.


Just a few years ago, these technology firms really do seem to be on track to change the world.


This year, the stock prices of these technology firms are in the dumps.


Here's an illustration of the annual return (till end of September) for Portfolio 1 (FAANG) and Portfolio 2 (BAT) against Vanguard 500 Index.




Records go back to 2015 because the BAT ADRs are only available from 2015 onwards.


The FAANG and BAT portfolios are equally weighted with rebalancing done annually.


Based on the backtesting results, 2022 is probably the first year you lose money having an FAANG portfolio. And oh boy, the drop is a staggering 41.72%. For most of the years since 2015, you actually beat the index in most years just by holding these 5 companies.


For the BAT portfolio, it's not the first time you get a negative return. You get a negative return in 2015, 2018 and 2021. In 2018 and 2021, the drops are of disastrous magnitudes as seen from the table above. The record is likely going to be broken in 2022 as we continue into the rest of the year. This means that anyone who has a BAT portfolio is sitting on a huge loss from the free-fall seen in these two years.



In fact, the CAGR for BAT portfolio is extremely disappointing with just 1.52%. Given how much FAANG has fallen, it is still at a respective figure of 22.61% CAGR which still respectfully beats the Vanguard 500 Index.


As the year continues, we might see the drop for FAANG and BAT continues into the negative territories. In October, we already saw the dismal results of FAANG for Q3 reporting and also yet another crash for the China equities after the party congress.


While it still remains to be seen if the prophecies described in the book will come true in the future, there may be one thing that is slightly clearer to you as an investor from the backtesting results so far.


You might be better off financially by investing in the U.S. technology companies.


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