Transcript:
Easan Arulanantham:
Now that the US is restricting some semiconductor sales to China, what is the market like Outlook for semiconductors, stocks and ETFs? And would this be a good buying opportunity since they kind of pushed down right now?
Tom Vaughan:
We saw NVIDIA dropped 11% this week because of the, their announcement that the US is restricting their ability to sell, stock, some of the high end chips to China, artificial intelligence, those types of things. It’s the beginning of a kind of a continuation of a trade war. In a lot of ways. It’s, it wasn’t $400 million, which is a lot of money, but it’s not that much money to Nvidia, it was probably a little bit of an overreaction, in my opinion. And I know, Cathy wood with the ARK funds bought a lot of Nvidia, for example. So she obviously saw some value there. I think one of the things I look at, though — there’s the basket of stocks, you can buy, like the SLXX, the iShares semiconductor ETF that we’ve had in our portfolios over the years in the past don’t have it now, per se. But the one thing I would I would be depends on timeline and what you’re looking at. So semiconductors, in my opinion, are still more on the higher end of the multiples in terms of the PE ratios. Across the group, you can find some cheap ones, but there’s some really expensive ones. But if you look at the entire ETF, it’s more expensive than the market is general. One of the things that’s happening because the primary trend right now is down, primary trend is down. And when the primary trend is down, things that have higher multiples, generally get crushed even more, and they try to bring those multiples down even further. And we’ve we’ve seen that this year, I mean, the semiconductors are down more than the market as a whole.
There is opportunity, but you just have to have the right timeline. So if you’re saying, Hey, I think semiconductors will be worth more than five years, I would agree with that wholeheartedly. And yes, semiconductors are a lot cheaper than they were so not a bad thing to do, hey, I’m trying to make money in the next year or something like that. I don’t know. I would consider I mean, for example, one of the things that I do in my own portfolio is I have a percentage allocation to different things. So I have 4% allocated to semiconductors. When the when the market drops in that area more than the other things in my portfolio, all of a sudden, we get 3% I’ll buy more, I’ll bring it back up to 4%. So that’s my way of kind of dollar cost averaging back when it drops, because I have at least a five year outlook on that. So I’m okay with that. And then if it goes to five, or six or 7% of the portfolio, let it run. That’s my way, and I’ve got several categories that I do exactly like that cloud computing, Clean Energy, you name it, just as those particular categories kind of drop, I buy more now, in that particular case, you kind of have some conviction, you got to really, really feel good. When I put something in the portfolio like that, and this is more for something I do for myself, but I’ve got to say to myself, when that drops, I want to buy it.
And Target got hit pretty hard. When that dropped, I had no problem buying –I really like Target, it’s got relatively low multiples, I think what they’re going through is temporary, they’re well run company, they’re really well positioned. Every time I go there, they’re super busy so but it’s still down for the year, because it dropped like 30% In two days after one of their earnings reports. So but semiconductors would fit into that category for me in terms of conviction, but in terms of -Hey, how’s it going to do here in the next three to six months, there could be a fair amount of pain because the overall market it’s kind of like the tide, when the tide goes up, it raises all boats, well, the same thing happens when the tide goes down. And things that have higher multiples can sometimes come down faster than those other things I’d be a little careful, maybe dollar cost averaging or having something like I’m doing a small percentage that you just keep buying if it does come down and let it run if it goes up, but I do i It’s a category I like overall and I think it’ll be higher in the next five years.
Easan Arulanantham:
So how would you handle if let’s say I have $10,000 of cash and I want to get into semiconductors now. I believe it’s a buying opportunity. I have a long time horizon. But I understand that the market is on a downtrend. So what would be a good strategy for investing that $10,000
Tom Vaughan:
Okay, so I’m gonna assume $10,000 is some certain percentage of your overall portfolio that you have at this point in time. So you’re just going to try to fill that out. I would take some time cost averaging approach right now 2000 A month 1000 A month, something along those lines, so kind of that five to 10 month range, and put that money in, consistently during that period of time. That’s going to be some percentage of my portfolio going forward. And then I just tried to do what I just said, maintain that percentage. So now it’s up to, 2% or 5%, or whatever it is.
I don’t like to go real high in certain areas, in my portfolios, like to keep things diversified, but then I try to maintain that. So if I had other monies after that 10,000 It dropped to 9000. I tried to bring it back up to 10. If it jumped up to 1215 Okay, I’m gonna let it run for a while. And if I see a lot of string sometimes we also buy that but, that’s how I do it right now it because if we were in a primary uptrend, that wouldn’t be the case, I’d probably just put the 10,000 in there and just try to if it drops by some more, but we’re not in a primary uptrend where you got a primary downtrend, and we are still there, I thought we might break out I was really hopeful. Didn’t happen. Really, at this point in time, that’s what $1 cost averaging I think would be great. Because if it does continue down, you’re continuing to buy shares. If it goes up, straight up from here, you wish you would have bought all of it with 10,000. But that’s okay, so something in that five to 10 month range would probably be pretty good.