A stock trader recently posted an infographic to Twitter, proposing that spikes in Google searches for FANG stocks meant trouble for FANG stocks. FANG stocks are the 4 horsemen of tech – Facebook, Amazon, Netflix, Google.
The post showed Amazon stock [only 1 of 4 FANG stocks!] trading down when the ‘FANG Stocks’ searches spiked.
It’s a fun anecdote similar to Joe Kennedy’s “You know it’s time to sell when shoeshine boys give you stock tips.”
So, is this true? Or is this correlation-causation fallacy at it again?
For those of you unfamiliar with correlation causation fallacy, it’s when an event [say, event A] happens followed by another event [event B], so you think event A caused event B because they happened one after the other. Similar to the ‘hats make you bald’ fallacy – since so many bald men wear hats, they must have gone bald because of them. Right? Or do bald men just wear hats?
There are strong opinions on both sides of the argument. I’m losing my hair just thinking about it.
In any case, it’s super convenient to place an Amazon stock chart on top of a chart of Google searches and draw an arbitrary conclusion. So let’s use Facebook as a counter example – Facebook – the ‘F’ in FANG [Facebook, Amazon, Netflix and Google.]
Here, we see Facebook doing virtually nothing [even rising slightly] as FANG stock searches spiked in June of 2017. The recent searches for FANG stocks in April show Facebook stock both falling and rising during search spikes.
It’s almost as if Facebook is its own independent company, and moves according to market forces, earnings expectations, and macroeconomic events, right!?
That’s because it is.
To be sure, let’s compare Netflix stock the same way:
Again, we see Netflix virtually unfazed by random spikes in FANG stock searches.
Again, we see a company whose stock moves according to market forces.
What’s the point here?
Beware of convenient anecdotes like ‘Sell in May, and Go Away’ or ‘nobody ever lost money investing in Exxon.’ They may be fun, and they may even rhyme. That’s why they’re dangerous.
Do your own research. Escape the ‘news-noise’ and do technical analysis to keep your investing thesis honest.
Make your own decisions.