A lot is going on with macro and AI. The AI bubble is very similar to the internet technology bubble that broke down in 2000, but that doesn’t mean you should be worried about it (yet.)
I will only share two experiences: one that shows how to stick and one that illuminates the split. In one case, I got to enjoy another double; in the other, it went south hurriedly.
Stay
One of the best software companies of that era was BEA Systems (BEAS, ultimately acquired by Oracle). I was the primary analyst on this company and helped to “put them on the map” with investors.
I’m not rehashing all the history, but after things started rocking for them, it was a little like what you see with NVDA now.
BEAS was the company and stock I knew the best. Perhaps better than anyone else. If a fly landed on BEA, I knew about it.
The shares were dead money for some time, despite all my protestations around it being my “best idea,” so I bought a lot. I don’t remember the exact amount, but it was my largest position. We’re talking seven figures here.
The shares went from around $8 to $42 in a few years. A decision loomed for me. I “took out a clean sheet of paper” and objectively looked at it from the bottom up. It’s the classic exercise of reviewing your portfolio and asking if you would buy it at this price.
My analysis revealed that I’d buy it here at $42 and didn’t sell a share. It went over $80, which is where I did sell shares.
There’s an old saying, “Nobody ever went broke by taking profits,” but it’s at odds with building real wealth.
Much to my chagrin, I remember getting an iPod and buying AAPL at $19 1/4 after the experience. I sold those shares at $35, feeling like a genius. That lasted one day, and now it’s another story.
Go
Later in the cycle, I had the great privilege of meeting Stan Lee. He had a micro-cap company (Stan Lee Media $SLEE, now long gone), and I thought I could help him turn it around.
The experience with him and his little company deserves a full write-up, but wow, what a master of his craft. He built characters and stories worth billions and got little out of it.
I’ve met hundreds of people who are very good and another few dozen that are great. Rarely do you meet someone profound. These I can count on one hand.
Stan Lee was one of those people. I successfully bought small, very thin names before they broke into the big time. Rational Software ($RATL eventually acquired by IBM) comes to mind.
I bought some shares of Stan Lee Media at around $4. It was pretty thin, so I didn’t have a big position, but I accumulated it when I could.
The shares started to get swept up in the bubble market. They went all the way to $24/share.
What’s instructive is what happens to liquidity when things turn. I tried to sell. I got a few shares off at $24, then another lot at $16, followed by one sale at $8. After that, the shares went no bid, and one never appeared.
The point here is that now I am a “scale seller” as stocks move up because I know that it doesn’t work on the way down (unless you consider $24 —> $16 —> $8 —> $0 to be your kind of scale). The latter is wonderful for shorts, but if you shorted at $4, you were probably covering at $24 ;-).
Ah Bach!
Radar doesn’t know Bach, but many people “know markets.” After 40 years, I wouldn’t say that I do.
Study the music, learn to feel it, and make your music. Above all, develop a process that includes risk management in at least 3 forms.