Buycast of the Day: Super Micro
Stock performance gains momentum when a small subset of investors show enthusiasm. That performance is followed by a more general, market-wide enthusiasm, which leads the stock to greater heights. And then it's a virtuous cycle, until it’s not. You don’t want to be the last one holding the bag.
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That’s why I never depend on investor enthusiasm – early or late – for my portfolio decisions. I depend on what I call “mean reversion to rationality” - the bet that eventually the market will pay a "rational" price for any stock regardless of how nuts it is now. I encourage you to bet on mean-reversion-to-rationality as well, so you can sleep well at night and retire early.
Here’s a demonstration…
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Super Micro Computers (SMCI), makers of data center servers and ancillary devices, has been a stock market darling over past few months. Its stock has shot up more than 800% over the past 12 months! Naturally, I keep receiving questions about it: “Should I buy the stock or is it too late?”
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Firstly, I’m not in the business of Investment Advice. Secondly, I’m not going to bore you with a long diatribe about the “secular tailwinds” of Cloud Computing for AI, and all that jazz. I’ll leave that for another day. Let’s assume you’re already on board with that Thematic bet. So, all I’m going to present to you is the most important number that I look at:
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“What do I need to believe about the business to buy the stock?”
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The rest of the dashboard in The Buycaster goes on to validate and quantify the believability of this Buycast. Of course, that validation process has a subjective side as well, and no two people will have the same subjective thesis. But this type of number crunching puts form and structure around those subjective arguments that can often seem haphazard and open-ended. That's the power of The Buycaster.
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Hope this helps.
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Many Happy Returns,
Saurav