Under the CAPM model, stocks have two components of return-- market return or beta and security-specific return, or alpha. Often, their market return dominates, and they move with the market. Their alpha is what enables them to overperform or underperform the market.
An extra wrinkle is that a stock return's coefficient applied to the market return may be 1, but may be greater or less than 1. If greater than 1, it will move a little more than the market in response to a market move. FAANG stocks likely have betas a little above 1, but you can check that.
Here you can see that the tech-heavy nasdaq index fund QQQ, Intel, and CISCO greatly underperformed the market from 2000-2002.
https://www.portfoliovisualizer.com/bac ... 7hOZTFjXuT
CISCO had an 86% peak to trough drawdown. That is diversifiable sector risk materializing. It may not materialize for the FAANG stocks, but it is a significant risk.
An extra wrinkle is that a stock return's coefficient applied to the market return may be 1, but may be greater or less than 1. If greater than 1, it will move a little more than the market in response to a market move. FAANG stocks likely have betas a little above 1, but you can check that.
Here you can see that the tech-heavy nasdaq index fund QQQ, Intel, and CISCO greatly underperformed the market from 2000-2002.
https://www.portfoliovisualizer.com/bac ... 7hOZTFjXuT
CISCO had an 86% peak to trough drawdown. That is diversifiable sector risk materializing. It may not materialize for the FAANG stocks, but it is a significant risk.
Statistics: Posted by Northern Flicker — Mon Dec 11, 2023 10:43 pm — Replies 6 — Views 836