August was a challenging month for investors with the majority of asset classes relapsing after a strong June and July. Indices continue to be held up by a narrow band of mostly US technology stocks now known as the Magnificent Seven (Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla and Meta) – the latest update to the high growth FAANG stocks (Facebook, Apple, Amazon, Netflix and Google).
Whilst it is tempting to be lured into buying ever more of these large, ‘high quality’ businesses experiencing extraordinary share price growth, it is perhaps worth reminding ourselves of the somewhat reminiscent story of the Nifty Fifty stocks in the late 1960s. These were a collection of US stocks which were believed to have been one way bets – such high quality, high growth businesses that, over the long term, a buy-and-hold strategy would always work. This turned out not to be the case and with the benefit of thirty years of subsequent returns, the investment maxim that a good business can be a bad investment held true.
Whilst there was no agreed list of exactly which stocks made up the Nifty Fifty, an investor who had bought the 24 stocks that appeared in both of the most widely used lists would have seen about half the returns of the S&P 500 between 1972 and 2001.
That is not to say that this will necessarily happen in the case of the FAANGs or the Magnificent Seven, but it is to reinforce and reiterate the importance of our investment strategy to buy high quality businesses, run by people that we trust and available at fair prices.
James Godrich, Fund Manager
https://economics-files.pomona.edu/garysmith/papers/Nifty50/Nifty50.html
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
