Until recently, you may have found yourself feeling foolish when investing became the topic of conversation and you didn’t have significant positions in FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks. These major companies seemed to rule the market news day after day, making huge announcements and seeing their stocks make enormous gains.

In periods of extended growth and low volatility, such as we have had over the past few years, diversification away from these “Headline Companies” can feel unproductive. However, periods of high volatility give us good reminders of why we diversify. All of the FAANG stocks are now (as of 11/19) down more than 20% from their 52-week highs:

Of course, these stocks were not alone in the recent market downturn. Stocks categorized as growth companies took a larger hit than the S&P 500 (what many of us call “the market”). Also, the S&P 500 took a larger hit than companies categorized as value stocks. In fact, since the S&P 500 peaked on October 3rd of this year, growth stocks were down 12.6%, the S&P 500 was down 9.4% and value stocks were down 6.1%, taking less than 50% of the downside that growth stocks took. This is not a new phenomenon, as value stocks have outperformed growth stocks in each of the five worst market years for the S&P 500 since 1979.

Our continued belief in diversification can be hard to hold onto at times, but when we remind ourselves of the long-term, fundamental investing principals that persist over time and we revisit our long-term financial plan and goals, our belief can be restored. There is nothing like a good market pullback (an oxymoron if there ever was one!) to remind us of why we invest the way we do.

For further reading see: https://www.franklintempleton.com/forms-literature/download/VALUE-FL

References: finance.yahoo.com