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Acronym Abbreviation Angst

FYI this blog is about acronyms/abbreviations and Asset Allocation, but before I get into the investment part I just wanted to say a few words about acronyms/abbreviations.

I have a love/hate relationship with A/A. They have the power to irritate (I don’t know about you I am already getting irritated by A/A); they have the power to make me laugh (one of my favourites is ‘BOGOF’ which appeals to the schoolboy in me); they have the power to confuse (join any large organisation and be prepared for a deluge of abbreviations which everyone, except you, understands); and they enrich the language – for me, LOL and OMG said in a sarcastic way are helpful additions to my vocabulary.

However, the one that currently feeds my grumpiness is ‘POTUS’. How can you cheapen the most powerful office in the world by calling it POTUS!? Whether it’s fit for purpose for the current incumbent I leave you to assess but, in the general, it's just plain inappropriate. Every time I see it, I get irritated – only cyclists going through red lights (and swearing at me for being on the road) make me more irritated.

On that happy note let me turn to investment and abbreviations and, even worse, acronyms. My first item of evidence is TMT (aka Technology, Media and Telecoms). As those born in the late seventies or earlier will recall, the late nineties saw an investment bubble driven by the pricing of the TMT stocks. It didn’t matter whether you had the craziest idea or the best if you could get classified as TMT, your stock was virtually guaranteed to rise. I invested in a tech start –up and within a few months the stock price had increased eight times – a few months later it was back to its original price. My point is that the attachment of an easily remembered abbreviation creates a perception of a degree of homogeneity between the group members which is often not justified.

Not long after the TMT stocks bit the dust along come the BRICS. Now I would be the first to agree that each of the five constituents has the common characteristic of not being in the MSCI developed market index but beyond that can someone explain to me what Brazil has in common with China or Russia with India. Brazil and Russia do have economies which depend to some extent on commodities and similar bi-lateral linkages can be established for India and China but … What happens is that the acronym again creates a perception of a level of homogeneity between emerging markets which in reality does not exist. As a result, virtually all emerging markets experience returns which, while justifiable for some, are not for others. It seems that those who benefit most from acronyms are those who are selling rather than those who are buying or is that being too cynical.

So imagine my horror when someone mentioned ‘FAANG’ to me (Facebook, Apple, Amazon, Netflix, Google(Alphabet)). Further analysis* reveals that these stocks and a few other US tech stocks are largely responsible for the outperformance of the US market over the last twelve months (return data). Now they have an acronym, who knows what will happen. I am no stock expert but I have been studying human behaviour (including my own) in investment for a very long time and when we have a TMT, BRICS, FAANG event I am reminded of the Benjamin Graham aphorism that the stock market is a voting machine in the short term and only in the long term is it a weighing machine.

*My colleague Josh Pyzer has done an excellent study of the FAANG effect. Read it here!

About Tim Gardener

I am a Partner in Aon's investment consulting team. I provide expert investment advice to a number of Aon's clients and contribute to the development of their intellectual capital.

Twitter: @investmenttim

Linkedin: https://www.linkedin.com/in/tim-gardener-00b59b15/

You can contact me via my blog editor Anna Rudgard

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