My last post generated a fair amount of negative feedback on my Yahoo Finance page and on Twitter. There’s nothing quite like waking up in the morning and being called an idiot (and worse) by all sorts of strangers on the internet. I understand that people have strong feelings about Fannie Mae and Freddie Mac, but I have to say, the vitriol of the comments took me by surprise.
Setting aside whether it was fair (or legal) for the government to change the bailout terms for Fannie and Freddie, my main point in writing about the two giant GSEs seemed rather straightforward: the low-priced stocks and preferred shares of Fannie Mae and Freddie Mac are extremely risky investments. If Washington formally nationalizes these companies (or does so informally, as it seems to be doing right now), there is a good chance that their stocks will go to zero. Sure, the big hedge funds and their armadas of lawyers might prevail in court and win the return of the companies’ dividends to shareholders. But even if that happens, it will probably take years. As I wrote in the last line of the post, “There are easier ways to make money.”
The broader lesson of the GSEs for both retail and professional investors can be stated in four words:
Warren Buffett famously advised investors to “be greedy when others are fearful.” With stocks all over the world getting clubbed in recent days, there is no shortage of fear out there. The question is: will all that negative sentiment become another “wall of worry” that the markets climb to new highs? I can’t say for sure. No one can. I will say that during yesterday’s gruesome selloff, I spent more time adding to my fund’s short book than searching out potential buys. That’s because, even with the Dow and S&P suffering their worst weekly declines in four years, I still see wildly, even stupidly overvalued companies everywhere I look.
Jim Cramer has been talking up what he calls the “FANG” stocks again: Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOG). Cramer has touted these stocks for several years now, and for good reason. They’ve far outpaced the market in that time. Throw in a second world-beating “A” stock, Apple (AAPL), and the five companies are worth a staggering $1.8 trillion in combined market capitalization, or roughly 17 percent of the NASDAQ composite and 9 percent of the S&P 500.
There’s no doubt about it: if you haven’t been in these stocks over the last few years, it’s been damn near impossible to beat the indexes. (And God help anyone who dared to short them.) But, past results aside, will the FANG stocks continue to bite off big gains in the future? Investors certainly seem to think so. Facebook’s early struggles as a public company seem like ancient history. Last week, Google added almost $60 billion in market cap in a single day and Netflix popped ten percent on strong user growth. As for Amazon, it just keeps heading higher and higher, profits be damned.
For those of you who tuned in to CNBC’s Closing Bell this afternoon to see me talk about my book, Dead Companies Walking, I’m afraid I didn’t get much of a chance to do so. I had a good time on the set and I thank the show’s producers for bringing me on, but to my surprise, they wanted me to weigh in on Google–one of the few publicly traded tech companies in the Bay Area I have never visited–and tell the world if the recent dip in its stock price means it is a dead company walking. (Spoiler Alert: No.)
They also moved my segment up an hour earlier than originally scheduled, so if you missed it, I apologize. You can watch a short clip of it below (or at this link if you’re reading this as an email).
There’s a good chance I will be doing another national television appearance later in the week. I will make sure to post the date and time once it is confirmed. Hopefully, I will get to talk about the book a little bit!