The best businesses can see very sharp swings in valuations. Just a small earnings disappointment, a moderating growth forecast and uncertainty on inflation have once again taught us a very simple lesson. This lesson has happened in the best of FAANG stocks.
The markets have shown these marquee companies a level of impatience which is usually reserved for market laggards. This only shows us how the markets can change their perception of even the best blue-chip companies in the world.
So, what should we learn from this sharp fall in FAANG stocks? This sharp fall only teaches us to be more moderate in how we value businesses. Even the best businesses should be sensibly valued. While investing, one should ensure that we purchase leaders at valuations which protect our investments. Blindly buying at any price is not going to work out and can hurt badly. It is possible to lose even 2/3rd of your capital in the best of companies. Investors should learn to pay judiciously for businesses and learn to take money out of companies when the valuation goes berserk. Blind buying and classic inaction are not going to make one’s investing succeed.
Investing must remain consistently judicious while buying, owning and selling equity in businesses. The current bloodbath in FAANG stocks is a stark reminder to investors in domestic blue-chip companies, that there is a very heavy price for overpaying. There is a heavier price for not selling overvalued businesses. Investments that deliver performance well ahead of time must be sold to harvest profits. Growth investing must always be followed by timely harvesting of profits. If not, the crop could come a cropper. That’s the key takeaway from the FAANG bloodbath.