To truly get FAANG, one has to understand FAANG.
FAANG stock component Apple Inc. (AAPL) - Get Apple Inc. (AAPL) Report hit the sweet spot of a $1 trillion valuation on August 2 after an impressive second quarter. While the achievement is a major milestone in the stock market—Apple is the first publicly traded U.S. company to hit the $1 trillion market cap level—now may not be the time to put your money into the tech giant.
"Investors have a habit of chasing performance, but another reason that novice investors gravitate towards tech is because of the hypnosis of the brands or products," explained Bankrate's chief financial analyst Greg McBride.
The FAANG stocks (Facebook FB, Apple, Amazon, Netflix and Alphabet) are front and center for a lot of investors. What each component company does is seemingly easy to understand since most folks use their products. That product obsession, and the fact these stocks are hyped around the clock on business news TV each day, lead people to quickly hitting the buy button without packing a clear financial understanding of the companies.
But a lot of novice investors don't have the financial literacy necessary to properly analyze FAANG stocks, or any stocks for that matter. If they did, it would be obvious that FAANG stocks are incredibly risky as they trade on inflated valuations versus the broader stock market, points out Bill Studebaker, President and CIO of ROBO Global.
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Hence, it came as a surprise to many that Facebook's stock crashed after second quarter earnings because of slowing user growth and rising expenses. Many average investors were unlikely aware of the importance of those metrics in the mind of Wall Street.
Once Wall Street said they were important in their various research notes and TV appearance, the less informed sold Facebook and asked questions later.
"Learning...what investing can or can't do for you, that should be 1,2,3, courses that should be given at some point while you're younger -- definitely by the time you graduate high school," said Lauren Simmons, the 23-year-old stockbroker who's the only full-time woman on the floor of the NYSE, in a podcast with TheStreet.
Reminds Scott Hood, CEO and portfolio manager of First Wilshire Securities, "The stock doesn't care what you think about it and it's not going to care what you think about it either way."
The solution to solving one's financial literacy void and becoming a better investor? Do your homework, as TheStreet's founder Jim Cramer has preached throughout his decades long career on Wall Street.
"Before you buy any stock, please, please, do your homework," Cramer says in his 25 Rules for Investing. "Listen to the conference calls. Go to the company's Web site. Read the research. Read the news stories. Everything's available on the Web. Everything."
Doing anything but this, well, would be a dumb move.
Read more "Dumbest Thing on Wall Street" columns here.