I have been warning investors of the dangers of indexing for some time. With correlations among assets down near all-time lows, it is only a matter of time before something has to give. Now what seemed like a safe bet has become a volatile up-and-down roller-coaster ride for investors. The Editorial Board of The Wall Street Journal writes:
Stocks bounced back Wednesday, but before that the tech-heavy Nasdaq had slumped 12% since its August peak. Falling FAANG stocks—Facebook , Apple, Amazon, Netflix and Google parent Alphabet—have swung the S&P 500 into a correction zone. Netflix tumbled 21% and Amazon fell 20% in October. Texas Instruments, IBM and Nvidia have also seen substantial stock price declines.
A tech revaluation was perhaps inevitable as prices leapt over earnings like LeBron James over Kevin Durant. Amazon’s stock in September was trading at nearly 160 times earnings, which wasn’t going to last. But what makes this month’s tech sale so jarring is that it comes amid strong quarterly earnings growth.
The alternative to indexing is, of course, selecting individual securities to meet your goals.
