re: all of our instincts tell us one thing while the market seemingly tells us another
Who do you mean by "our"? You mean the regular posters on this thread, right? Examine that sentence, and you will understand why this thread is a lagging indicator. Before late 1998, there used to be a balanced discussion on this thread. Then, the news turned very positive, and the posts turned very positive. Uniformly, extremely, 110% positive. In fact, anything other than Positive was so obviously wrong, that is was ridiculed. You had a group of people, some of them posting many times a day, month after month, all with exactly the same opinion, powerfully reinforcing each other's opinions. They were right, and they knew they were right. In late 1998, and continuing till today, this thread became dominated by investors who are in love with this stock. And, from late 1998 till April 2000, being in love with this stock was the correct investing attitude. Is it still true?
To answer that question, you cannot ask people who are in love with a stock. In order to have a chance of catching the turn, you have to talk to people who are capable of seeing it. Those investors were all driven off this thread over a year ago. Cary, because of his stature, is the only poster allowed to post Other-than-Positive things. Or, maybe he is being tolerated because the stock is getting toward 50% off its highs (the traditional point at which the bears get welcomed back).
I've made more money in the semi-equips, over the last 5 years, than in any other sector. Over that time, I've been long, short, and on the sidelines, at various times. I would have made a lot of money simply loading up when the stock was out of favor, and never selling. That's a very reasonable strategy. But, I've made even more money, by selling when the stock is in favor, loading up at the bottoms, shorting them in mid-to-late 1998, an offsetting hedge strategy in late 1998, and using LEAPs. I've made mistakes, I've gotten in too early and too late, I've been very uncertain about what's going on a lot of the time. I do not have the Absolute Certainty that so many on this thread have. But I've gotten rich, with AMAT and INTC mainly, over the last 5 years. There is a huge amount of money to be made in the semi-equips, if you don't fall in love with them. Every cycle, they also give us the opportunity to lose a fortune.
I, too, use "50% off", as a crude indicator for when it might be safe to get back in. I too, am thinking about starting to buy. Some general rules I've found useful are:
1. follow the semi industry, (not the semi-equip industry), to tell you what is going to happen to semi-equip stocks. It used to be that you could use Micron and Intel as proxies for the entire chip sector. Although still big buyers of AMAT equipment, the growth going forward will be more spread out (TI, fab-less companies like QCOM, etc), so following the semi sector has gotten harder.
2. the bottom usually happens later and lower than most investors think. There is usually a "bottoming period", several plateaus followed by lower plateaus, and several false starts. Waiting, and then waiting some more, is usually a good idea.
3. This industry is cyclical. Consistently, numerous press articles saying the industry is no longer cyclical, is a sign of a cyclical top. Maybe "it's different this time", but the historical record is overwhelmingly against that idea. The important question for me is: do I have enough time to buy now, hold 12 months (so I pay 20% vs. 40% taxes), and get out before the the cyclical top? I need to be fairly certain of my answer, or it is probably better to just wait.
4. Given the fact that valuations in this upcycle have reached levels far above anything seen at any other cycle top, we can expect the valuation compression to be even more severe, next down-cycle (now? In 2003?). If you miss the turn, you could be looking at holding AMAT till it hits a P/S of 1 (the 1996 low). Even a P/S three times as high as the 1996 low (P/S = 3), would represent an unacceptable loss of capital, for me. I will not risk that. Everyone has to make their own risk/benefit balances. I am undecided about how close we are to the cycle peak. Cary, I think, has the wisest things to say about this.
5. The B2B is a lagging indicator(at best, coincident, and not clear until several months after the turn) , and didn't do a very good job last cycle top. Inventory levels, margins, profitability levels at semi companies are better indicators. My take is that the picture for those indicators is mixed. I'm still thinking about the Intel news: Is this company-specific? is it Europe-specific? Is it PC-specific, a sign of a shift in semi growth to communications chips? Or is this the Warning Bell of a cycle peak, and everyone (in retrospect, of course), will say it was an obvious warning to GetOutOfSemiEquips? I don't know, frankly.
6. I do know that the chart looks extremely ugly (duh!). AMAT is volatile, but in upcycles, it doesn't usually drop 50% off its highs. It makes repeated 20-30% drops, and then continues to new highs. Drops this large (and lasting this long), in the past, have consistently indicated TheCycleIsOver. But maybe It'sDifferentThisTime. Maybe. Anyway, I'm watching carefully, but doing nothing for now.
JS@theirritatingvoiceofdoom.com |
