 Good day, film investors! What's going on with the darlings of the market? The Facebooks, the fang stocks? I'm sure you all want to know the answer what to do. Well, I'm going to discuss the most important factors that affect investing in that today and I believe it will give you a better perception on what to do with your positions. Let's dig into it. The factors I want to discuss is the increased volatility, Facebook's story, what will happen to Facebook's business and stock, the momentum, growth fundamentals, the inflows of cash and outflows, which are very important for investing in the short term in the fang and nasdaq stocks. We're going to compare the current tech stock levels with the 2000 bubble, understand the risk, especially the regulatory risk and how to position ourselves. Finish with a note on Tencent. So it hasn't really been a good week for the nasdaq. I'm filming this as the market is open quiet day as I'm filming this. Hope it will stay like that. But this is what happened up till first date. The nasdaq was down 4.21% for the week. Facebook is down 10% for the week, which is a big hit. However, put into perspective, you can see the nasdaq is up 120% so it's a minor bump there and Facebook is also up 540% so another minor bump. The question is, is it a bump or is it a structural trend? More about that later. And here you can see how the fang stocks exploded on performance over the last year. They really outperformed everything else. The key over that outperformance is and Goldman reported it very well back in the summer of 2017, then issued a report saying what are the factors that are influencing fang prices, fang stocks and what are the risks that coming out. That day the fang stocks dropped 3 to 7% but then the market forgot about what Goldman was saying. However, those are the key components what you have to know what's going on. Let's dig into Goldman's report and apply it to the current environment. So first what Goldman said is that the fang is making a bigger, bigger part of the indices which increases the risk because if an index is exposed to only 5 stocks that's not good for the environment and when the trend reverses the momentum trend the purchasing the inflows reverts then you see a big big drop and increased volatility and this is what is happening exactly now. You can see this from the Goldman report the momentum was spiking up everybody was rushing into fang stocks, momentum stocks trying to get into the trend and take advantage of the trend. When all those people pile up this is end summer 2017 and the trend has continued up to January 2018 which made extremely stretched valuations and extremely crowded trades. Everybody was after those stocks and if you look at the positions of hedge funds you can see that their top positions it's Amazon, Facebook, Time Warner for the arbitrage, Alphabet, Microsoft. So fang stocks are there and everybody's chasing them and if you look at the position in their portfolio 8, 6, 9, 7% of the portfolio of hedge funds is in those stocks. So when the momentum is so strong when everybody's rushing into that the risks just piles up piles up piles up and the most most important driver for stock prices is the momentum which increases the risk especially the short-term risk and that's what you have to think about those hedge funds those hedge funds are going to sell and that momentum that crowdness everybody's going to be scared and run away so there is a big risk of high increased volatility and this is something you have to think about your portfolio positions are you going to okay keep something forever because you like the business you like the business model you like the exposure to billions of customers and keep one part of your portfolio as a trade as a rebalancing portfolio okay this stock goes down or I'm keeping liquidity when if it drops at these levels I'm going to buy I'm going to sell and I'm going to try to get some alpha by taking advantage of the volatility that we are seeing now stocks go up down down up down every week so that's one way of approaching this position see how much risk can you take and don't fight the trend if the trend is negative really see how much you can take advantage of the trend that's from a short-term perspective and that's what's going on let's look at the fundamentals the fundamentals are there and they always matter and let's see if we are in a tech bubble as we have been in the 2000s if we compare the size we are there fang aggregated is 13% of the SAP 500 tech bubble was 16% the top companies the valuation was double in the 2000s so the valuation is not such a concern plus the cash positions of the companies now is 10 times bigger almost than what it was in the 2000s further the cash flow yield is also four times higher but the profitability isn't that big if you look at the valuations from a price to book perspective so what is the market valuing you can see that now we are at the same level with SAP 500 2000 bubble this means that the market is valuing the intangibles the customer user base extremely high so each customer the value of the customer grows grows grows but that's also where the risk is so we have mentioned also momentum risk but now we come to customer value risk what are the companies going to do and to quote goldman fang has created positioning extremes factor crowding and difficult to decipher risk narratives of the risks big risk is regulatory risk which changes and changes the value of that user base that is pushing up price to book values and focusing on the intangible value and this is one of the big risks after 20 years the european union is changing is data protection regulation which will have a big impact on facebook and google if i google something and then go to facebook what i googled is perfectly targeted to me and those ads are perfectly targeted to what i might buy google isn't such isn't that precise and youtube ads aren't that precise however facebook is extremely precise extremely powerful there if regulators see that we feel affected that our privacy is affected we start to raise our voice as consumers facebook will get regulated as microsoft was regulated in the 2000s which forced microsoft to lower the margins lower exposures and there was even microsoft saying like it is like coca-cola should sell two cans of Pepsi in a six pack and that's what can happen also to facebook or it could limit the power the value of the user and as the value of the user is the intangible price in the stock prices that's your risk that's the long-term risk so you have to see whether this is a bump a buying opportunity or it is a structural trend that's going to affect those companies for a longer term that affects the value of the user by increased regulation by allowing competition to enter the market by adding much more randomness to their targeted specific ad adverts and will they be able to reinvent their business model to target other areas to add value that's a very very big question and that's a question you have to see for yourself and see how to position again the parts of your portfolio just on facebook engagement time is dropping dramatically the user base is slowing down the growth isn't that fast so that's the long-term risk i have mentioned the short-term risk is the momentum the crowded trades that are increasing now the volatility because there is a lot of money that might want to get out and the long-term structural or trend from the user base from the engagement time and all those metrics that with the regulation might change so you have to see what is going on for yourself and adjust the risk reward it's all about risk reward as goldman was saying it's investing is about the risk even if nobody wanted to see it back in the summer of 2017 let me finish with tencent and something again incredible that happened tencent reported earnings plus 50 in revenue plus 61 in operating profit plus 75 in profits but the stock went down what 10 percent over five days incredible why because the ceo said that looking forward we are substantially increasing our investment in areas including video payment cloud artificial intelligent technology and smart retail which will impact our near-term earnings but which we believe can generate long-term value for shareholders and growth opportunities so investors in that crowded trade they are chasing next round earnings everything is focused on getting a quick buck not on the long-term shareholder value and that's also something you have to see and see whether you will be able to take advantage of dips in the future thank you for watching looking forward to your comments tomorrow we will be discussed the stock market news the Fed and what's going on in the politics and tariffs extremely important again huge week that's why I'll make two videos one more dedicated to stocks one more dedicated to the macro environment thank you I'll see you in the next video