We’re going to make today’s lesson a quick one: even though most of you have heard it before, what I show you next is a very graphic representation of it. So let’s head over to Reddit, where one person on Wall Street Bets had this to day:
“Grandma died 2 months ago. Left me $800k inheritance. I’m only a junior in college as a math major and I don’t really have any use for the money, nor do I have any debt (I’m very fortunate that my parents are paying for my education). I always heard about people losing their inheritance by spending it on garbage instead of investing. So I told my parents I’m not going to spend a cent of this money and I’m going to invest all of it and they were proud of me.
I put 100k into a high yield savings account and bought 700k worth of Intel stock at market open. I plan on holding this for a decade depending on how it performs.”
Is this an aimless dart throw? Did he just randomly pick Intel because he liked the name or something? No. In fact he has some of the fundamentals right. The following are his own reasons:
“2024 Q1 up 9% YOY
Intel has been heavily investing and restructuring by building out the domestic foundry business to manufacture semiconductor chips for third party companies.
With Intel 3 in production, leading-edge semiconductors are being manufactured in the US for the first time in a decade. Intel will regain process leadership as the Intel Foundry continues to grow.
I think the fact that Intel is positioning itself to be the largest semiconductor manufacturer in the US is massive. The US Gov is heavily prioritizing domestic semiconductor production and thus is heavily supporting Intel as a company with R&D funding.
If NVIDIA or AMD are ever forced to change manufacturers due to rising tensions/war between China & Taiwan, Intel will likely be a sole or largest manufacturer for NVIDIA and AMD
Intel has been heavily investing in R&D. 5.9B out of 12.7B of Q124 revenue was invested in R&D
Intel is on track to exceed its forecast of 40 million AI PCs shipped by the end of 2024
The Intel Gaudi 3AI accelerator is projected to deliver 50% faster inference and 40% greater inference power efficiency than NVIDIA H100 on leading AI models.
Trading at Forward PE of 17.05
Geopolitical tensions will ultimately work in Intel’s favor more than any other company in this industry
I like the stock and I think its really cheap rn 🙂”
Sounds like he did his homework right?
No, but I’m sure he thinks he did.
For example: there’s no guarantee that heavy R&D will mean anything. It could just as easily mean the company is spending a billion dollars researching a total dead-end. Do keep in mind that Intel’s 13th and 14th Gen CPUs have seen jaw-dropping failure rates.
On 2nd August, Intel stock crashed 27%, on missed earnings and a planned 15% reduction in headcount.
As the image in the same post shows:
(By the way, it dropped further to $23 later)
So, what are the two lessons we can learn from this tremendous bout of stupidity?
First off, diversification is really important. Again, I know you’ve heard this before. But this is just a fantastic demonstration of what happens when you take almost the entirety of your capital ($700,000 out of $800,000), and dump it into one stock. And before you assume you’re too smart to ever do that, bear in mind the person who did this studies mathematics as their major.
Greed and a huge amount of money is a financially lethal combination. Bear this in mind, if you or your children became single digit millionaires from inheritance, lottery wins, etc.
The second lesson is that Do Your Own Research (DYOR) is often a myth. Not always, but often. Despite the best efforts of organisations like the SEC, there’s an unavoidable degree of asymmetrical knowledge. Here, the investor was overconfident about their ability to interpret tech markets; but the same thing can happen to a layperson trying to understand a medical company’s products, or the impact of new ship construction methods in the oil and gas industry.
This doesn’t mean you shouldn’t DYOR, but you should do it with the full awareness that – just because you’ve read a bit more than the average person – that doesn’t mean you can fully trust in your own knowledge (unless, of course, it’s an industry that you actually work in).
Once again, don’t put all your eggs in one basket. And if you suspect that your investment portfolio is way more risky than it really is, reach out to us for help at Single Digit Millionaire.
