Why I bought AMAT (20% of my portfolio) on 11-30-00, at 40:
Rereading my old posts, I realise I have a systematic bias. I am too pessimistic. I thought the 2000 top would be a lot lower, and I thought the 1998 bottom would be a lot lower. To correct this bias, I am deliberately starting to buy at a level higher than I think the stock could bottom.
(reposts):
Reasons:
1. I want to stick to my discipline of being fully invested, and I decided to bail on WCOM today for the tax-loss (do you think I caught the exact bottom?), so that money needed to go somewhere
2. I watched the stock sink below 40, while lots of other stocks failed critical support levels. Then I watched it pull itself back to 40, and I said, "lots of people out there willing to step in at this level, even on a day like today".
3. Holding support, after months of bad news, capped by more sector-specific bad news recently, on a day that feels like market capitulation......this impressed me.
4. notice, I bought the stock, not the LEAPs. I still need to see 28-30 in the stock, before I'm willing to buy the LEAPs.
5. I was encouraged that the BTB was up last time. If we see two months in a row with falling bookings, I will probably sneak back to the sidelines.
6. 40 is closer to the bottom than 115.
7. this may be only a short-term holding. I'm a "weak hand" at the moment, and it won't take much to make me go back to the sidelines.
8. I force myself to buy when panic engulfs the market, and TrimTabs says cash is way up in stock mutual funds.
9. I see excellent odds of some good news for the market in the next 3 months: Bush will really and truly be President, the Fed will go to a neutral bias (but not actually lower rates), fears of a recession will fade. These ought to be good for a little 20% pop in the Nasdaq.
The question is, how much of this (negative sentiment) is already in the stocks?
IMO, in the stocks now is:
1. a soft landing in the economy, causing a
2. modest deceleration in anticipated chip demand, with the current stuffed inventory channels getting cleared out after 1 or 2 quarters more, causing
3. a few pushouts (again, by 1-2 quarters) for capacity builds, by semis with no cash and weak access to credit, causing a
4. flattening or small downturn in bookings, from current high levels.
IMO, what is not in the stocks is:
1. recession in 2001
2. severe downturn in chip demand
3. cancellations of semi-equip orders, as chip companies put off technology builds (like 300mm) for over a year, like they did in 1998 and 1996,
4. causing the typical severe downturn in bookings seen with every previous cyclic downturn in this industry.
Listening to interviews and CC questions, every single question the analysts ask management (semi and semi-equips) is some version of:
is demand softening?
are you going to warn (again)?
is inventory increasing?
Pushouts?
credit problems (you or your customers)?
One main reason I bought now, was because I think a belief in a slowdown has already taken hold. That is, it's in the stocks (now). From the time the stocks peaked, until November, there was a lot of confusion, and wishful thinking. Now, the analyst community, and the business press, has reached a consensus. The new Party Line is: demand for chips will be less than anticipated, and therefore demand for semi-equip is going to be less than anticipated. Everyone is anticipating and expecting reductions in capital equip budgets for 2001. The range of debate is whether we get a hard or soft landing. By buying AMAT now, I'm betting on a soft landing. If we get a hard landing, we'll see AMAT at 28-30 in 2001. And if we get a coincident recession in the overall economy, we could see lower. Yes, lower. If we get a soft landing (for the industry and economy), it's in the stock, and the 38-40 support line may hold. All IMO.
My guess is that semi-equip bookings have a modest, irregular downturn in 2001, bottoming in 2Q or 3Q, and then go up (again, modestly). Then they continue on up through 2002.
As always, there will be lots of volatility in the stock. A 30% range every month should be expected. False rallies can add 40% to the stock price, and then we set new lows, and this could happen repeatedly.
At the moment, the stock is trying to decide whether to reestablish support, and return to the 40-54 trading range.
I've put all my thoughts in one post, so I can print it up, file it away, and reread it in a year or two. I do this systematically, to refine my decision-making methods, in a feedback loop. A year from now, I'll reread this, and it will be clear whether my thinking was right or wrong. |
