My Contra & the Mind of the Market
"Everything is AI"
Yesterday after market close I wrote on why I had shorted Nvidia just a few hours earlier.
I explained the sequence of events, annotated the micro-events on the Nvidia price chart and showed how I used technicals to short at a level with good risk/reward (IMHO). Read it below ⬇️
“Narrative follows price”
You see the chart of Nvidia and the broader AI/Semiconductor Complex and you feel sick. “I could have been long that!”, you tell yourself.
This cycle and the dynamics around it are unlike no other — and so I think it’s important to UNDERSTAND it from multiple angles.
Here we go…
Mind of Market — Psychology of Contra
“Everything is AI”
This was one of the lines my contra used to explain the market. But he didn’t mean it in a disregarding or patronising manner, he said it, and he FELT IT!
The implications of “Everything is AI” from his perspective is that you must not hold stocks that don’t have an AI angle around them. Everything else is dead money.
“I don’t want stocks that go sideways even if they pay some dividend. They go up, and then they go down again. I can’t stand to look at them!”
He then mentions Meta, Netflix, Novo (Novo Nordisk) and of course Nvidia…
“I’m smashing it, the portfolio is up so and so in 2 years…”
I asked him if he remembered the sell off in late-2021 and how reacted to it (he lost his cool)…
“Yes, I stayed in on these names and now they all bounced back, I am only losing money from BABA!”
He then go on to say…
“Know what you invest in! Isn’t that what they say? Well, I know these stocks. I use Ozempic, especially with my diabetes, I take it with both arms! I’m making big money from Novo!”
We then move on to Apple…
I mentioned the valuation, explained that the stock was going sideways for years and explained the conclusion of my piece "Downside at Apple”.
I then added that the buyback won’t achieve so much leverage this time because valuations were cheap before and now they’re expensive — plus growth is much diminished!
“But we’ve know for years that it’s not a valuation market, it’s about FASHION. Everyone will sell their old iPhones to buy the new ones so they can have AI. Everyone will do it…”
I change the tone and say, “I am telling you things will turn, the true player would sell some here — you’re making so much money you say.”
“Maybe I will, if I see things turn I might sell. I don’t know. Even if my stocks drop 50% from here I can take the hit…”
I asked him if he is looking to catch the PEAK OF THE MOUNTAIN, he swiftly shoots back.
“If I can, why not?”
The Gist and TRUE Market Psychology
My contra sees himself as an investor that takes time to read up on companies, but in actuality he is a novice position trader — with all the implications…
Similarly, the market seems to be running on the same fairy dust of AI dreams, GLP-1 drugs to the moon and other hot themes. Thread on Weight Loss Drugs.
I made a list of the dynamics shaping markets today, here they are:
Valuations don't matter
ROI doesn't matter
Competition doesn't matter
Business risk doesn't matter
Cycles don't matter
History doesn't matter
What the business does doesn’t matter
When Nvidia/AI finally turns, the indices will go with it because the Naz and the SPX are just running on this broader theme. When that happens, they will all forget that they are long-term investors and remember that they are just traders.
I’m just here for the fireworks!
Sincerely,
Philo 🦉
Further Reading
Don’t forget to read my piece on the future of the Euro and how I am playing it.
