Tom Nash
patreon
How To Invest In Stocks During The AI Hype Cycle - Tom’s Academy Exclusive
🕑 Added 2023-07-10 19:53:59 +0000 UTCDear Academy members, as we prepare for this weeks lessons, I would like to briefly talk about the recent AI hype in the stock market.
Bottom line: it is my opinion that despite the validity of AI technology and it’s massive upside, we are in a market bubble. There are legitimate generational AI players in the market right now, but most of the hyped stocks have nothing more to offer than some hot air.
Over the past few months, every single company that has mentioned the word AI in their business description (C3.Ai anyone?) saw a parabolic spike in its share price, almost overnight.
You can’t tell me this is not a bubble. Simple.
AI will change the world, like tech companies did in 2000, but many names will be remembered as nothing more than a meme (Pets.com anyone?) to remind us of the craziness we once saw in the stock market every time a CEO said the word AI during his earnings calls speech.
How do you operate in such and environment as a long term investor? Here is the quick step by step process:
1. You understand that greed is the biggest risk to your portfolio in a time like this and you accept you will never going to catch the entire hype wave without taking massive risks, or in other words gambling.
2. You eliminate greed and gambling from your process by following a process religiously and with complete discipline, ignoring the price action.
3. The process:
3a. Locate good companies by using the DCF evaluation model we have started learned in lessons 1 through 3. You have the WACC, year 1 cashflow calculation, and the years 2-5 growth estimation lessons under your belt, you can start building your DCF models and finding undervalued companies to invest in.
The market is full of stocks that are trading at prices not supported by fundamentals, leave those to gamblers and speculators and look elsewhere.
3b. as long as your investment thesis is firm and relevant for the company you selected, keep Dollar cost averaging (DCA) slowly into that company monthly, using the 10% threshold rule, and ignore everything else completely.
This process is incredibly simple for a reason.
The simpler it is, the better. Complexity in long term investing does not make you more effective, quite often it works in the opposite direction.
Remember the core principles of our system: you double down when prices are lower, and slow down when prices jump up.
With the latest AI stock prices insanity, you should not be spending, but instead to maintain a capital preservation mindset, and only DCA at the regular pace into your list of good companies.
Keep your eye on the ball and stay disciplined within our process.
Tom
