Sometimes it’s the free fall that kills you

I’ve been banging on recently about pending mean reversions in the price of many assets.
In today’s news, it’s Facebook’s (Meta) turn.

They reported poor quarterly earnings and the stock has fallen 23% in after-market trading.It’s going to erase some serious market capitalisation.

It’ll be wiping out the same amount as the combined sharemarket value of ANZ Bank, National Australia Bank, Westpac Bank, Wesfarmers and Telstra.

Facebook’s stock price is well on its way to a long term mean reversion.

In my charts (see below), I use a 200 week moving average. I want to reiterate, this is a 4 year rolling mean. 

I’m not rejoicing the decline but I’m highlighting that when managing investment portfolios, ‘alpha’ can be strangely achieved by not owning assets which are overpriced or perilously stretched.

As I don’t short stocks, telling people when to stay away doesn’t show up in any performance reports.

Some of my reminders and prompts have included;

My January 21 newsletter showed many charts of stocks who have already been crunched.

The December 28 newsletter highlighted the distortion the FAANGM stocks are creating within the S&P 500.

On January 26, 2022, an extract from this note, 

said, “Meanwhile, the other three of the “FAANGM’s gang, being Netflix, Amazon and Facebook have already broken below their corresponding (or sympathetic) support lines.”

February 3, 2022

by Rob Zdravevski

rob@karriasset.com.au