In August 2018, Apple Inc made history when it became the first company to be valued at $1 trillion. Fast forward to yesterday’s close (7/6/2020), and the company is now worth more than $1.6 trillion. In just two years, it added $600 billion, an increase that exceeds the total value of all but 3 of the world’s publicly traded companies.

Other firms have since joined Apple in the $1 trillion club, including Amazon, Microsoft and Google (Alphabet). These high growth stocks have been so popular in recent years that they are grouped together by popular acronyms like “FANG” and “FANMAG.” Comparing their performance to the S&P 500, or even the tech-heavy NASDAQ, it is no surprise why they are so beloved. They have all dominated the market over the last five years.

The strong performance has continued during this tumultuous year. Response to the Covid-19 outbreak has generally been considered a tailwind for each of these firms for obvious reasons. The ability to entertain yourself, keep in touch with others, work remotely, and have goods shipped to your front door have all been critical during this period of increased isolation.   

While it is difficult to imagine a future where these world-beating companies are dethroned, history tells us that it is the likely outcome. The chart below illustrates the ten largest U.S. stocks at the start of each decade going back to the 1930s. A few things jump off the page:

  • Only five of the top ten companies in 2010 remained in the group in 2020.
  • Only two of the top ten companies in 2000 remained in the group in 2020 (Walmart and Microsoft).
  • No company in the top ten in 1990 managed to stay on the list.

Each of the FANMAG stocks is represented in the current top ten, with the exception of Netflix. The streaming service has achieved one of the fastest growth rates, but it currently resides just outside of the list. Regardless of how dominant a company’s position appears, competitive advantages have historically been no match for the relentless forces of capitalism. It is possible that one of the current top ten will maintain its position over the next century or more. General Electric and Exxon, for example, each remained on the list for nine decades. Still, there are reasons to believe the current top ten, and the FANMAG stocks, in particular, will meet the same fate as virtually every company to come before them:   

  1. The law of large numbers – In a financial context, means a large entity that is growing rapidly cannot maintain that pace forever. As an example, how does Netflix maintain its massive growth after everyone has subscribed to Netflix?
  2. Increasing competition – Not just from small startups, either. The FANMAG firms are increasingly competing against each other in areas like cloud services, video streaming, search, AI, and advertising (among others).
  3. Success sows the seeds of failure – Large companies can become complacent, more bureaucratic, and less nimble.
  4. Regulatory & antitrust action – We have seen an increase in government activity in this area in 2020. 

Stock prices reflect all relevant known information as well as the market’s expectation for the future. Everybody knows the FANMAGs have forever changed the way we live, and many believe they have the capital, talent, and innovative spirit to continue to reshape our world. Those lofty expectations induce investors to pay more today to participate in that growth tomorrow. This dynamic introduces an additional risk. A company can deliver good, even great results, but if they are not the spectacular game-changing results anticipated, stock performance could suffer. You can see this play out in historical return data. The high expectations associated with reaching the top ten are often not met and have led this group to subsequently underperform the broad market over time.  

Annualized Return in Excess of Market for Stocks after Joining List of 10 Largest US Stocks, 1927-2019

Source: Dimensional, using data from CRSP and Compustat. Includes all US common stocks. Largest stocks identified at the end of each calendar year by sorting eligible US stocks on market capitalization using data from CRSP. Market is represented by the Fama/French Total US Market Research Index. Excess return for each stock is the difference in annualized compound returns between the stock and the market, computed from the first month following initial classification in the top 10. Stocks in the sample are required to have at least 36 months of returns data following classification in the top 10. 

How long the FANMAG stocks can continue to dominate the market is anyone’s guess. The beauty of a broadly diversified portfolio is that the answer doesn’t really matter. If all six firms remain kings of the hill for the next 100 years, then great, a diversified investor will participate in that continued success. If they were to fall due to the relentless forces of capitalism, government action, or simply buckling under the weight of their high expectations, then that’s okay too. Diversification would limit the impact of that decline while allowing for participation in the next crop of world-beaters.  


  • Published late last week, the Jobs report was better than economists were forecasting. The U.S. economy added 4.8 million jobs in June, versus expectations of 2.9 million, and lowered the unemployment rate from 13.3% to 11.1%. The report is based on surveys that were conducted in the middle of June, prior to the recent surge in Covid-19 cases and pauses/rollbacks of reopening measures for some regions. Additionally, much of the job gains were from people coming back from a temporary layoff; the number of Americans facing permanent job loss actually increased during the month.
  • The Institute for Supply Management’s (ISM) Non-manufacturing Index increased much more than expected, rising to 57.1% from 45.4% last month (readings above 50 indicate expansion). The index covers activity in the services sector, which is the largest component of the economy, so improvement here is a very good sign. It’s expected the index to weaken in July, due to the Covid-19 case resurgence.
  • The Chinese stock market has been on a tear recently as economic data from the country first hit by the Covid-19 pandemic continues to improve. Additionally, state media comments that talked up the benefits of a strong bull market added to the optimism and likely provided a tailwind to the share increases. China’s strong performance has contributed to emerging markets in aggregate, leading all other asset classes so far this quarter. 


Source: Morningstar Direct.

Source: Morningstar Direct.



Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)



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Source: MarketWatch

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Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
  • BSBA, University of Nebraska, Lincoln, NE

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