Do you remember the BRICS? Did you think “this time is different?” It turns out, that catchy acronyms are not the best way to invest. Ruchir Sharma explains in the Financial Times:
Given the battering markets have dealt so far this year to tech stocks, led by the Faangs, it is worth stepping back and recognising what is coming apart: the whole concept of acronym investing.
The unbundling of the Faangs is much like the fall of the big emerging markets, known as the Brics, a decade ago. A hot theme seizes the imagination of investors. Marketers coin an acronym to capture the trend and it works well for a while. Emboldened, people start piling on, deriving similar acronyms. As the trend matures, its fundamentals deteriorate. Many names start to show serious flaws but, instead of rethinking, investors keep rewriting the acronym. In the end, few if any of the original prospects are left with a mass following.
Coined in 2001, the Brics originally included Brazil, Russia, India and China. Marketers later added South Africa. Following an unprecedented, decade-long boom in emerging markets, Wall Street analysts started pitching smaller countries as the same bet on the rise of emerging markets. They coined Civets (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and Mist (Mexico, Indonesia, South Korea and Turkey).
Soon the easy money that had been flowing into these markets started to dry up, exposing their frailties. When India faltered in 2011, sales folks suggested Indonesia replace India as the “i” in Brics. Then commodity prices fell sharply, taking down Brazil, Russia and South Africa, and investors wised up. One dismissed Brics as a “bloody ridiculous investment concept”. At varying speeds, the smaller emerging markets tanked in the 2010s, and country-based acronyms went out of style.
A similar investment cycle is playing out now. Coined in 2013 as Fang (Facebook, Amazon, Netflix, Google), marketers soon added Apple to make it Faang. These stocks had an amazing run and analysts began stretching the formulations to Fangmat (including Microsoft and Tesla) or Fangmant (with Nvidia). They extended the concept to China, packaging its Big Tech firms as Bat (Baidu, Tencent and Alibaba).
Read more here.