Better Investing Academy

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This is going to be fascinating to watch. The recent revenue boom in memory chipmakers isn't driven by selling more units. It’s driven almost entirely by price hikes caused by demand exceeding supply. Higher prices automatically expand margins. When margins expand, market hype pushes up the stock’s valuation multiple. But here’s the catch: these valuations are also pricing in 3 years of perfect future growth, fueled even further by investors using leverage to buy. Don’t confuse high cyclical margins with a strong moat business. When high margins are caused by a temporary market shortage, those profits vanish the moment supply catches up and reaches equilibrium. A truly great business with a wide economic moat can defend its pricing power and margins regardless of supply-demand cycles, because the market pays a premium for durable value. I will patiently wait to see how this unfolds and opportunity to arise.

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If you are a stock investor, always make decisions based on the business and valuation. Buy strong businesses that can continue to grow. Buy businesses that's fairly valued or undervalued. The valuation will protect you from being overpaid and the business will ensure you won't lose money over the long-term. Even when you buy cheap and undervalued, the price may go down still but at least you know you bought around the bottom. And the growing business will make the price recover and go up higher in the future. That's how you invest and that's how you won't feel nervous about your money. When you have conviction on your company and it's selling for cheap, you will be very excited to add more, not be fearful about the declining price. Because you understand this law that stock price will follow company fundamentals over the long-term.

What's the solution?

When you make decisions only based on price, this is the problem. You worry tonight's price could be a trap and go lower after that. But you also worry you might miss the boat and lose out from the big recovery and profits.

Investors love to market time. They keep searching for this answer. But the truth is no one can do this.

Or will it be like SNDK here when it fell then rebound a big 18% before it dropped even more?

So right now, is it the time to buy? Is this the real recovery already? Or a dead cat bounce?

Memory stocks tonight may rebound strongly as you can see below.