What's Behind FAANG Stocks' Rally?

Welcome to StockUp, the investing newsletter that tries to keep all its exuberance strictly rational. --------------------------------------------------------------------------------------------------

View this email in your browser Welcome to StockUp, the investing newsletter that tries to keep all its exuberance strictly rational. As the economy languishes, the mighty FAANG fivesome just won't quit rising — and we think we've figured out why. Plus, why Amazon's regulatory and legal problems aren't getting any less perilous from here on out, and several surprising facts to consider before you buy that next lottery ticket. — Nathan Alderman, StockUp Editor MAGICAL MYSTERY TOUR Is This What's Behind the FAANG Stock Rally? Facebook (NASDAQ: FB) & Apple (NASDAQ: AAPL) & Amazon.com (NASDAQ: AMZN) & Netflix (NASDAQ: NFLX) & Google, a division of Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). OK, that last part gets kinda kludgy, but let's just acknowledge that "FAANG" sounds so much cooler than "FAAAN" and move on, shall we? The stock market's bounced back for a modest gain after its pandemic-fueled plunge earlier this year. But these five companies — these masters of the market, these barons of the bull run — have absolutely thrashed those gains. The worst performer among them (sorry, Alphabet, but that's you) has still tripled the S&P's year-to-date growth. The best (Amazon, you're up) is tap-dancing all over the index by 73 percentage points. As Fool Sean Williams notes, these results might lead you to think that Wall Street brokers love, love, love these stocks. But a look at what high-profile money managers actually bought and sold suggests the opposite. Big-money Wall Street players are selling a fair bit more of these stocks than they're buying. Why, then, do these five stocks remain in the stratosphere? Do us a favor: Find the nearest mirror and take a look. Retail investors just like you love these stocks even more than high-end brokers seem to fear them. But that leads to an even bigger and more important question: Are retail investors right? The companies behind these stocks definitely dominate their industries, but will their shares keep heading higher? According to Sean, the answer is yes. But also no! Well, it depends. To learn more about why this Fab Five keeps topping the charts, and which components Sean believes are better positioned than the rest of the group for solo success, read the rest. Already subscribed to a premium service? Click here to view your subscriptions. Not a member yet? Click here to sign up! RIVER DAMMED? Why Amazon's Hurdles Are Getting Higher Don't call it "death by a thousand cuts" — maybe more like "increasing hassles by a thousand* lawsuits." (*Not an accurate representation of the actual number of lawsuits.) As Amazon.com gets larger and more powerful, Fool James Brumley reports that it also becomes an easier target for litigation. And in the future, the cumulative effect of those lawsuits could seriously erode its current competitive advantages. Amazon insists that it's not responsible for goods sold through its platform via third-party sellers. Courts in California and Texas have replied, in essence: "Oh, yes, you are." That's not great for Amazon. Third-party goods represented 19% of Amazon's 2019 revenue — and a high-margin chunk at that. And its army of 2 million third-party sellers provide a healthy portion of the roughly 10 million goods listed on its site. Having to vet each and every one of those products for authenticity and quality would cost Amazon a bundle and significantly slow down its process for making goods available for sale on its site. (We'll leave aside, for the moment, whether such steps might also better protect customers.) That third-party problem represents just one of the company's multiplying litigation aggravations. Price-fixing cases against the online giant are brewing in Germany and the U.S. Amazon's claims that it's not responsible when its contracted delivery drivers get into accidents are also under fire. And that's just the tip of a very large legal iceberg — toward which Amazon seems to be sailing at full speed. For more on the courtroom challenges Amazon faces, and how they might affect the company's future, read the rest. ALEXA, HOW CAN I OVERCOME CONVENTIONAL THINKING? Not sure what to ask your smart speaker? Keep up with what's happening in the market by asking your Amazon Alexa or Google Home to "Play Motley Fool podcasts." MAY THE ODDS BE NEVER IN YOUR FAVOR 7 Hard-to-Believe Facts About Lotteries and Jackpots Hey, we get it. Spend a few bucks, potentially get back a dump truck full of money? Who wouldn't find that idea tempting? But before you decide to take a flier on those Powerball numbers or that scratch-off ticket, keep in mind that your odds of any kind of a return are only slightly better — and arguably less entertaining — than just chucking your cash into a wood chipper. (At least that way, you get to see some confetti.) Fool Selena Maranjian's rounded up seven things you need to know about lotteries. Here are the first few to get you started: The odds are against you. Really, really, really against you. For some of the biggest jackpots, the odds you'll win come close to 300 million to 1 — not too far off from just picking one American at random. Statistically speaking, you're a whole lot more likely to get bitten by a shark, or give birth to identical quadruplets, than to win the lottery. A guaranteed win would still ensure that you lost. Suppose you had enough money to buy every single possible combination of numbers, ensuring that you'd definitely win the prize. Alas, the difference between how much you'd make from that prize, and how much you'd spend buying the tickets, means you'd still come out deeply in the red. Don't listen to your lying brain. We humans tend to believe that stuff we see on the news, whether lottery wins or airplane crashes, is more likely to happen to us than actual statistics bear out. So when the news tells us all about the latest big jackpot winner, we're more likely to think, "Hey, that could be me!" It almost certainly won't. We throw a lot of money away. In 2017, Americans spent nearly $72 billion on lotteries — or roughly $218 for every single person in the country. By comparison, in 2019 the nation spent just $35 billion on video games. For more fascinating facts, including why you might not ever want to actually win a lottery, read the rest. NOT QUITE MIND CONTROL, BUT... FEATURED PODCAST Change One Word to Win Support for Your Idea Looking to get support for your ideas? Dr. Robert Cialdini, author of the best-selling book Influence: The Psychology of Persuasion, recommends using a key word when making the request. Subscribe on iTunes ROUNDING ERROR A Foolish Correction Last week, we goofed inadvertently in our article about Apple's (NASDAQ: AAPL) share buybacks. Over the past four years, the company actually made roughly $263 billion — yes, with a "B" — in net income. You know what they say: A few billion here, a few billion there, and soon enough you're talking about real money. Yours Fooly regrets the error. BRIGHT IDEAS Quick Reads You are my sunshine, my only sunshine: Startling stats about solar energy. Would you like butter or hand sanitizer on that popcorn? When will going to the movies truly be safe again? Kindest cuts: An unexpected number of Americans approve of these four big changes to Social Security. PUT ON PARACHUTE, THEN JUMP Social Media Post of the Week See all our Instagram posts! Join the 1,300,000+ people who follow us! We work fervently, fastidiously, and Foolishly to make sure all the facts and figures we publish in our emails are 100% accurate and up to date. Returns as of August 26, 2020. Have a question or topic you'd like to see covered in a future edition of Stock Up? Email us at stockup@fool.com. Our mailing address is: The Motley Fool | 2000 Duke St. | Alexandria, VA 22314 Want to change how you receive these emails? You can update your preferences or unsubscribe from this list. This is a promotional message from The Motley Fool Copyright © 1995-2020 The Motley Fool. All rights reserved. Legal Information.