TINA which stands for “There is no alternative” has had a major impact on stock markets this year to the point where it has become a moniker for strategy adopted by investors. COVID-19 virus has raised the day-to-day importance of many popular companies and investors have poured billions into these favorites under the TINA theory to own them. In social media, Facebook is a TINA stock, Google is a search TINA and Amazon is a TINA in cloud computing. Tesla is TINA in electric cars and Apple is TINA for their affluent worldwide network of addicted customers. More importantly, investors are paying very high prices for these companies.
When bank interest rate is close to zero and bonds are yielding ~2%, there is a case to be made that the only real choice is equities. What is impressive is that investors have shown themselves to be a gritty bunch all year. Despite the major correction in March and then subsequent pullbacks, the most recent one being earlier this week, the markets bounce back as if nothing really happened. The big question is “Will the optimism continue for the rest of 2020 and is it wise to follow the TINA strategy?”
Future Wealth’s View
While, we at Future Wealth, have a sizable portion of our clients portfolios in equities and in many of the names highlighted above, we have a major concern over the concentration of a few companies on the S&P 500 and the Nasdaq. Together, the FAANGs (Facebook, Apple, Amazon, Netflix and Google) make up about 15% of the S&P 500—a staggering figure considering the S&P 500 is generally viewed as a proxy for the United States economy as a whole. The concentration in the Nasdaq 100 is even worse. Apple, Microsoft, Amazon, Alphabet, Facebook and Tesla now account for more half the value of the index.
Here is where we draw the line. Instead of piling on the same names just because TINA, we instead look for sectors and companies that are under the radar or are undervalued in the current environment despite being solid companies with strong cash flow and good growth ahead. In doing so, we trade off on some of the continued appreciation in the FAANG names but protect clients’ portfolios when these high flying names come back down to more reasonable valuations.
TINA may be the go-to phrase now but the reverse ANIT (Avarice Never Is Tenable) will hurt investors at some point.