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There is a reason why you shouldn’t buy high-flying stocks, and Meta (Facebook’s parent company) is the latest example of why.
Meta stock is down 73% this year, the worst-performing stock in the S&P 500.
Investors clearly aren’t thrilled with Mark Zuckerberg’s plans to transform Meta from a social media company to a platform that will host a virtual world where people work, shop, and interact with others using an avatar. Yes, Ready Player One is a great book and movie, but many don’t think Zuckerberg can recreate the Oasis (the story’s version of the metaverse).
Though, it is worth noting that if Mark Zuckerberg is right, Meta will easily be a multi-trillion dollar company. The problem is that we won’t know for another ten years.
Tech Stocks Having A Difficult Year
Meta isn’t the only company to suffer catastrophic losses this year.
PayPal is down -60%
Netflix is down -57%
Amazon is down -45%
Tesla is down -41%
Alphabet (Google’s parent company) is down -40%
For some less well-known stocks, it gets worse.
AMC is down -66%
Peloton is down -74%
Coinbase is down -77%
Roku is down -78%
Wayfair is down -83%
Carvana is down -96%
Apple is Still the King
Surprisingly, Apple has outperformed its peers, down only -22% for the year. It still boasts a whopping $2.2T market cap and is still the largest company in the world.
In fact, Apple’s market value is now worth more than Alphabet, Tesla, Meta, and Netflix combined.
Picking Stocks is Hard
This shows that picking winning stocks from losers is pretty hard. If you picked well-performing stocks in 2021 but poor-performing stocks in 2022, ask yourself this question: Is this due to bad luck or due to a lack of skill?
This is an important question because many investors will attribute excellent performance to better-than-average skill. However, this same person will also attribute poor performance to bad luck.
The problem is that it is difficult to separate skill from luck in the short term. However, over time, it becomes more apparent that most stock-pickers lack skills. Most cannot replicate outperformance over time, even among “professional investors.”
Buy the Index
As many of you already know, our investment strategy involves buying index funds to avoid this trap. After all, the odds are stacked against you in the game of active management.
We bring other aspects of money management to the table, such as market cycle risk management and sector weighting. But we are already light years ahead of the pack by simply buying index funds instead of picking individual stocks.