On any given day, some stocks will rise and others will fall. Sometimes individual stocks perform very differently than their peers, and that’s why you need to look beyond the market index.
In the early 1970s, a gang of blue-chip American stocks known as the Nifty 50 ran the market. Names like General Electric, Coca Cola and IBM surged ahead, even as the rest of the market languished.
In the late 1990s, the first generation of Internet stocks took the lead. Now-defunct outfits like Kozmo and Pets.com drove the NASDAQ to record highs, leaving more traditional (and sustainable) businesses in the dust.
In recent times, a second generation of Internet stocks has broken away from the pack. As this chart shows, in 2015, Facebook, Amazon, Netflix and Google, collectively known as FANG, far outperformed the broader U.S. market.
The lesson is simply that stock market indexes do not always reflect what’s really happening.
At Cumberland, we look at broad asset class cycles to decide where we want to be, then we apply very careful value analysis to every individual security that we may invest in. It’s this approach that has helped our clients consistently protect and grow their capital, no matter which way the index is heading.