No one can say how long the AI hype will last. Here are some worrying observations from this earnings season and how I am preparing for a potential crash in AI stocks.
I know this series of articles - a total of 4 or 5, which has been hidden somewhere deep in my database since 2021 or so.
You'll laugh, I even took my bearings from it. But 2022 made me rethink and I only realised how long it takes, with significant booking losses, even for great companies, to come back. And you just can't underestimate psychology. Pulling the rip cord at rule of -30% is extremely difficult psychologically. Reason does not always win over emotion, especially when the cnn-fear-index stands at super fear and the vix at extreme values. But each to their own.
nota bene: the series of articles you wrote on principles is great and everyone should have read them.
you are becoming more bearish with each year. I appreciate your analyses very much, but I disagree with you regarding a crash in the near future. Besides, we all know that 10% corrections can occur several times a year. A real crash (>30%) occurs much less frequently than many fear and then miss significant uptrends on the sidelines.
Regarding overvaluation, I can only say: good tech stocks were NEVER cheap, and I'd rather buy individual tech stocks via a monthly savings plan and thus make the "DCA effect". Then it doesn't matter, whether it's an ATH time or a crash scenario that strikes.
I like the idea of no longer letting a LONG portfolio be flooded, as also happened to me in 2022, and it is not wrong or reprehensible to try countermeasures or to become active on the SHORT side. Incidentally, shorting a stock only works with a margin account, which not everyone likes/wants. But there are inverse ETFs that can also be traded.
What is missing from your article, in my opinion, is risk management with STOP LOSSES.
I have started to set a stop loss for every purchase and to generally set it upwards (only upwards!) after about 7-28 days, if the price is moving in the right direction. It depends, among other things, on my holding period, volatility, individual risk tolerance and, of course, the stock itself.
I agree with strategists like Minervini, PT Jones and many others on this STOPLOSS issue and I sleep much better at night.
Thanks Mick for your thoughtful comment. I worked with stop losses for many years early in my investing career and it works probably well for many people. But for myself (as an often contrarian investor) I am more successful with what I call my "Rule of 30" which I have described in this article: https://hightechinvesting.substack.com/p/high-growth-investing-101-part-2
I know this series of articles - a total of 4 or 5, which has been hidden somewhere deep in my database since 2021 or so.
You'll laugh, I even took my bearings from it. But 2022 made me rethink and I only realised how long it takes, with significant booking losses, even for great companies, to come back. And you just can't underestimate psychology. Pulling the rip cord at rule of -30% is extremely difficult psychologically. Reason does not always win over emotion, especially when the cnn-fear-index stands at super fear and the vix at extreme values. But each to their own.
nota bene: the series of articles you wrote on principles is great and everyone should have read them.
Stefan,
you are becoming more bearish with each year. I appreciate your analyses very much, but I disagree with you regarding a crash in the near future. Besides, we all know that 10% corrections can occur several times a year. A real crash (>30%) occurs much less frequently than many fear and then miss significant uptrends on the sidelines.
Regarding overvaluation, I can only say: good tech stocks were NEVER cheap, and I'd rather buy individual tech stocks via a monthly savings plan and thus make the "DCA effect". Then it doesn't matter, whether it's an ATH time or a crash scenario that strikes.
I like the idea of no longer letting a LONG portfolio be flooded, as also happened to me in 2022, and it is not wrong or reprehensible to try countermeasures or to become active on the SHORT side. Incidentally, shorting a stock only works with a margin account, which not everyone likes/wants. But there are inverse ETFs that can also be traded.
What is missing from your article, in my opinion, is risk management with STOP LOSSES.
I have started to set a stop loss for every purchase and to generally set it upwards (only upwards!) after about 7-28 days, if the price is moving in the right direction. It depends, among other things, on my holding period, volatility, individual risk tolerance and, of course, the stock itself.
I agree with strategists like Minervini, PT Jones and many others on this STOPLOSS issue and I sleep much better at night.
Keep up your good work!
Mick
Thanks Mick for your thoughtful comment. I worked with stop losses for many years early in my investing career and it works probably well for many people. But for myself (as an often contrarian investor) I am more successful with what I call my "Rule of 30" which I have described in this article: https://hightechinvesting.substack.com/p/high-growth-investing-101-part-2