It’s a Trap!

shortage of semiconductor chips

Right now, would-be investors are eyeing the carnage. For example, Ford Motors (NYSE:F) announced that it experienced a 33% drop in sales in August. The reason: There exists a severe shortage of semiconductor chips for the automotive space. They are not alone. General Motors announced that it was cutting production at eight facilities across the United States. The lack of semiconductors weighs on production. 

Naturally, this doesn’t just affect the number of cars being sent to the sales lots. It impacts employees working at the plants. It impacts the suppliers of all components down the supply chain and their employees. It impacts the local economies where these companies and people live. It has a compounding impact that whips through the entire supply chain. 

Shortage of Semiconductor Chips

Now, you might be looking at the story of a shortage of semiconductor chips and thinking that it’s time to take advantage of the higher prices. Or you might read articles on the internet telling you that buying certain semiconductor stocks will be a boon. But history says that when a story like this happens, to be very patient before jumping into a trade.

Simply put:

Remember that the Smart Money out there is typically weeks or months ahead of a trend. We can look at hedge funds across the nation who profited from the inflation trade, from the reopening trade, from the Federal Reserve, and every other trend. We see stocks in the semiconductor space surge, for example, back in April. Then, they bottom out in the following month. 

Keep in mind that you can find articles in Entrepreneur, Barron’s, and countless other publications. Back on April 8, 2021, stories about rising electronics demand coupled with a massive chip shortage hit the pages of Entrepreneur magazine. The magazine named three stocks in the space that were poised to benefit from market conditions:

AMKR had recently gone from just under $22 to $26.38 the week before publication. Right after the publication, shares fell to under $18 in early May. ON had a similar trajectory. The stock was around $43 on the day of publication. Two weeks later, it was under $36. And UMC fell from $11.19 on April 26 to about $8. Why does this matter?

In It or Out?

The reason that I point out these sharp moves is that anyone who bought these stocks likely sold out a few weeks later after these downturns. It’s not the author’s fault. In fact, all three rallied higher and are now sitting near all-time highs. But it was a volatile few months. 

Trading a “trend” short term can lead to a lot of disappointment. In fact, many retail investors who bought the stocks from institutional investors at high prices likely sold them back to the same people just a few weeks later. That is the shakeout that happens on a regular basis. 

If you’re serious about making money on a major trend that might take a while to reveal itself, you need to have conviction and not sell out because of fear. We’ll talk more about the different ways that you can master your ego and control your trades in the weeks ahead.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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