May 21, 2018


FAANG is an acronym for the five most popular and best-performing tech stocks in the market: Facebook, Apple, Amazon, Netflix and Alphabet’s Google.

Our minds have been reeling the entire week as we come to certain grip over our perceptions, something that struck us as we drove down Irwell Bank Road into Kim Seng Road and wonder why the LTA would paint these curved lane markings when entitled drivers just went straight?

The Malaysian election results have been a blow to our perceptions of the happy country up north that really appeared quite chill with their government until they were allowed to vote with crowds working up their rage once the incumbent party lost power.

And thus we tepidly embrace the perception of calm in the markets as 3-month treasury bills yield more than stocks this week, the first time since the Global Financial Crisis, because even as Americans’ confidence in the stock market is crumbling at the fastest pace since 1987 and only 1% of investors polled think that the global economy will strengthen in the next 12 months (down from 4% in April), the S&P 500 is quite on pace to return a new record of $1 trillion to shareholders in buybacks (and dividends which is lower than the 3 month bill rate).

Too-Long-In-The-Tooth-Art-2Source: Bloomberg

Is the bull market too long in the tooth and FAANG?

We really do not know much about bull markets because this one is heading for the 10-year record come March 2019 and we really think there is no such thing as a confluence of the ideal P/E ratio with the ideal interest rate environment for the longest bull run in history because such things are best left to be reviewed in hindsight.

It is impossible to be pessimistic yet because we have to make some money on the Xiaomi IPO coming right up, the largest listing by a Chinese tech company in nearly 4 years since Alibaba’s debut in 2014.

This comes at a time when it would appear that “the biggest consensus position perhaps in history, namely everyone (including Harvard Endowment) being long FAANG + BAT”.

Too-Long-In-The-Tooth-Art-3Source: Zerohedge

No wonder Baidu, Tencent, Alibaba, Xiaomi, PingAn and gang are spinning off as much as they quickly can? Baidu, with its recent iQiyi (iQiyi Inc, +11.56%)? Ant Financial coming up? Tencent’s potential music spin-off? Ping An’s Good Doctor (1833 HK, -1.92%)?

With the 5 FAANG companies accounting for 27% of Nasdaq? Tech stocks overall taking up 25% of the S&P 500’s market cap (FAANG accounting for nearly 10%), we have China’s MSCI debut on 1st June with its potential weighting to grow up to 14% in time from its 0.7% share of the MSCI Emerging Markets Index.

Now would we stupid enough to make ourselves look foolish by saying that we are getting tired of all this?

Why did Warren Buffet just pile into Apple and not Amazon, Facebook, Netflix or Google, making Apple the largest holding in his portfolio at $46.3 bio?

Is it because Apple made more profit in 3 months than Amazon has generated during its lifetime?

Too-Long-In-The-Tooth-Art-4Source: CNBC

Tired of the Perceived Valuations

We have grown bored and tired of the perceived valuations.

Look at the 2 Singapore great tech stories of 2017—Razer Inc (1337 HK) and SEA Ltd (SE US) a.k.a. Garena.


China Literature (772 HK) never saw its 100% gains again as the stock trades just 20% above IPO price today and Ping An’s Good Doctor (1833 HK) went out on a whimper after its IPO on 4 May, now trading under its IPO price.

The recent tech darlings—ZhongAn Online (6060 HK, -11.98%) and Qudian Inc (QD US, -52.17%), are just a few of the names that perfectly illustrates Why Tech Company IPOs Can Be So Overvalued, as a WSJ article published last week tried explained.

Valuations keep escalating with each round of funding in private markets until the IPO phase and we have Didi Chuxing last valued at US$ 80 bio when it was just US$ 56 bio in late 2017 as well as Ant Financial now worth US$ 150 bio when it was just US$ 60 bio 2 years back.

Source: WSJ

The End of Perceived Blind Faith

And it’s not just the IPOs, the FAANGs have to keep growing their user base, borrow money to keep acquiring like Amazon did with Whole Foods, and keep the authorities at bay if they want investors to continue believing in their sky-high PE ratios and trust that they would eventually corner the markets and become more profitable.

The table of PE ratios probably does not mean that much but we can perceive why Buffet bought Apple and not the rest, or Nvidia (NVDA US) either, with its 43.24 PE ratio.

Too-Long-In-The-Tooth-Art-7Table of PE ratios, projected PE and dividends

We should not hold our breaths for Amazon after Donald Trump’s tweet to the US Postal Service, suggesting that they double the rates for Amazon. For that matter, Facebook just shut 583 mio fake accounts this week which, hopefully, will not hurt the bottom line too much especially to advertisers who will realise that there are fewer eyeballs than they perceived.

The scams and cracks are starting to show up for us though we are unsure if we are at the cusp of a possible rude awakening when we read about the fintech company operating in a deserted office (with no tech) was valued at US$5.4 bio when it was under SEC investigation, or the British healthcare startup faking reviews and the “magic” EBITA numbers of WeWork, Groupon, etc.

It says so much for the wannabe members of the FAANG-club.

We Have Lots of Apps But We Just Don’t Use All of Them

It became a heated discussion between the FAANG/BAT-faithfuls and us when we asked how many food delivery apps we each had on our phones, yet we only have room for 1 meal each time.

It is the same for the ride-hailing apps because we only take 1 ride at a time.

We cannot shop and read Chinese literature at the same time, or play the latest game on Garena and read news on Twitter, or watch Netflix and listen to Spotify, thus we can be sure that Netflix viewership may take a dip sometime in June when the World Cup starts?

It is crazy times now where we are about to enter an age of profit destruction, as a hedge fund CIO puts, “Right now, we’re at this classic late-cycle moment where everything appears to work. Both the disrupter and incumbent have gotten an equity boost—less profit per unit of equity market cap. That tells you what you need to know about stocks.”

Yes, every dollar on Redmart means a dollar less for Cold Storage, tech and fintech companies are burning cash to get those users in and at the rate the property prices are rising in Singapore, we are not sure if we will have more money to spend on new iPhones and Amazon items.

Yet, all the ride-hailing apps on our phone count us as 1 user in their user base, all the food delivery apps treat us as 1 client for the purposes of their valuations and we can bet that Food Panda still calls us client even after we deleted their app in protest.

And ask any kid CEO out there what their ambitions are?

The answer is always to be acquired for most, and for the more ambitious, an IPO.

Till now, it is so simple and will be simple as Xiaomi and Ant Financial hits the stock markets.

For us, it is just a bit too long in the tooth for the FAANG club.