Equities.com Vigilante — Shorting FANG @ $1 Trillion

Steve Kanaval  |

I love the current description of stocks that matter in 2015. FANG stands for Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) , and Google (GOOG) and are responsible for an ungodly growth ratio of all portfolios. In reality, you cannot be an active portfolio manager in 2015 and not have one or all of these stocks in your long portfolio. As we pass into Q3 and start heading down the home stretch for 2015, the risk of staying with FANG on the long side in any portfolio is career-threateningly risky.

The Woody Hayes Theory about Passing the Football

My history teacher at Ohio State was famed football coach Wayne Woodrow "Woody" Hayes. When asked about why he ran the ball in an era when passing was emerging in college football, Hayes spouted an axiom that applies to so many other parts of life that I think of it often. He said: "When you pass the football, three things can happen and two of them are bad." It was perfect in its simplicity and applies to what to do with FANG if you are a portfolio manager in 2015. If you stay long these four stocks, three things can happen and two of them are bad.

 The three things are:

 1.) The stocks can go down

 2.) The stocks can do nothing and you look silly for being long this late in the cycle

3.) The stock can go up

The Little Man that Lives in Your Gut

If you ask any portfolio manager when it is time to exit a stock they will tell you that 50% of it has to do with a combo of fundamental and technical analysis and the other 50% has to do with a little man that lives in their stomach — that pokes at them once they shut down trading for that day.

That little man is the culmination of years of counter-intuitive instincts they develop after managing money through good times and bad. It is the reason wealthy people invest in hedge funds today, and it has little to do with quant or fundamental data points.

Portfolio managers survive on their wits and make no mistake — they are traders first, fathers and husbands second, and philanthropists third. It can be a prison that exists from the neck up, and the decision all portfolio managers must make in Q4 2015 is: what in the hell am I going to do with FANG?

I have the answer. If you are flat for the year, short all 4 stocks in FANG; if you are up for the year, short all 4 stocks in FANG; and finally, if you are down money for the year, short all 4 stocks in FANG.

 Let it be noted that these are the prices in FANG today: FB = $95, AMZN = $535, NFLX = $124, GOOG = $656. The makes the combined short benchmark for FANG $1,410.

The second number we should pay attention to for purposes of keeping score is the combined valuation of FANG: $1 trillion. This combined valuation is a perfect benchmark short number to make keeping score easy.

 You heard it here first: short FANG at $1 Trillion and check back on December 31st. Good night Woody - thanks for the history classes.

Steve Kanaval is the author of the upcoming Equities.com's Small-Cap Throwdown, a premium newsletter designed to help investors identify the best small-cap stocks to add to your portfolio and trading ideas to profit off them. The first issue pits the hottest beverage small-cap stocks against each other to find a winner. Sign-up here for a free issue today!



DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Symbol Name Price Change % Volume
FB Facebook Inc. 141.85 4.43 3.22 26,422,173 Trade
AMZN Amazon.com Inc. 1,641.03 11.90 0.73 7,494,808 Trade
GOOG Alphabet Inc. 1,039.55 2.97 0.29 1,807,725 Trade
NFLX Netflix Inc. 269.70 4.56 1.72 9,605,553 Trade


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