FAANG stocks continue to dominate the performance of markets YTD. Netflix hit a new all-time high again today after announcing it would raise prices yesterday. Better now than in 2019 when Disney pulls its content from Netflix. Facebook is bordering on all-time highs as are Amazon and Tesla. Tesla isn’t a FAANG stock, but the investors who buy it are of the same ilk as those who buy the FAANGs.
High growth stocks are for sure exciting to invest in. They are innovators and disruptors and often on the cutting edge of new technologies. Everybody wants to invest in the next big thing, but far too many investors in these types of stocks assume that rapid growth will continue forever. It won’t. The past is not prologue in the stock market. The fastest growing firms of the last decade are rarely the fastest growing firms of the next decade.
Competition is often the culprit here. Firms in rapidly growing industries or businesses attract attention and capital. New firms enter the market, steal share and drive down profitability. This has happened time and again throughout economic history.
And though it has been belated, competition is finally starting to emerge for some of the high-growth firms that are so popular with investors today. The latest to catch my attention is in the market for electric autos. MarketWatch reports that Dyson, you know, the vacuum company, is getting into electric cars. Tesla is the obvious target here. So Tesla will not only have to worry about traditional auto-makers, but apparently any firm that uses electric motors and batteries in its products.
Is that a business you want to be invested in for the long-run?
Dyson has been disrupting the vacuum cleaner and hair dryer industries for decades, and the leap to cars is a logical one, Leptoukh said. “The automotive industry will no doubt bring its set of challenges, but we are comfortable with challenge,” she said. “And we are working with the same core competencies we’ve been working on for years — primarily motors and batteries.”
Read more here.
Jeremy Jones, CFA
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