Hi everyone
Not sure there is already a topic on this forum about this, however the South Korean market crashed a few days ago? Peculiar setup, however there is a risk that could happen also in the US. Link to a video that explains the fact: https://www.youtube.com/watch?v=hy90LdpEUvQ.
What are you thoughts?
Thank you
Don
Not really surprising when Samsung and SK Hynix went crazy on AI and then everybody decided that jumping onto leveraged ETFs was the sensible thing to do.
I heard some crazy statistic about the number of accounts getting margin called…
I like Patrick Boyle’s video about it: https://www.youtube.com/watch?v=nJtL9MBVj48
I don’t think it is what would happen in the US. For once, it’s less concentrated even if tech heavy. Then, leverage is probably better watched over and insitutional investors are more represented.
For the record, I still expect a major drawdown at some point, which might be tomorrow (or in 10 years, market irrationality and all that).
I think in this case it was just because of the high part of AI related stock in that segment. The craze will continue for a while I think before it breaks. Too much interest to keep it going.
In any case it reminded me again to watch out for an unfavorable combination of FTSE Asia Developed and MCSI Emerging markets.
I think Koreans are degenerate gamblers and the government made it immensely worse, they pretty much incentivised leveraged ETFs on margin.
What is a drawdown to you? Some stocks had 20% + pullbacks in July.
-1% would be a drawdown to me depending on the timeline.
A major drawdown in the context of my post would be something like -40%+. It should shock investors sufficiently that it would create a change in the current investing mindset, chasing some investors out for longer than just the short term.
-20%-30% would be a regular bear market.
AI stocks are the new craze as people didn’t find crypto that cool anymore. So leveraged single stock ETF is the name of game.
In US I think for now such things happen with Meme stocks for now
But you are talking about indices or? Because as I said, some stocks were down that much, even more. Some are down 50% from ATH earlier in the year.
The post was replying to a comment that what has happened to the South Korean market could also happen in the US so I was referring to the US stock market as a whole. Total market or S&P 500 as a proxy.
I would expect individual stocks to have way more volatility and to be able to loose 50%+ several times in a row, in a matter of days, especially the more hyped ones, flying at ultra-high P/E multiples.
The NASDAQ 100 is probably a mix of the behavior of the total US market and individual stocks, with its heavy tilt toward tech.
In the grand scheme of things, what I think is irrelevant. It doesn’t move markets. People should be invested according to their convictions, need and ability to take risks.
For the record, I am not myself invested in the US market because I don’t trust their government. If I was, I would probably underweight it because I am somewhat trying to limit my exposure to hype when it can be done with low effort.
Edit : also for the record, I also expect a major drawdown in the global world markets, with the irrationality caveat applying (meaning it’s not actionable because I can’t time it and it can skyrocket before plumetting and still be up from my starting point, just like the South Korean market.
How long have you been expecting such a drawdown?
I’m asking because there have been reports of a drawdown for almost a year now. Is a drawdown really a drawdown if it does not happen for more than six months?
You can take that timeline back to 2016 at least. People have thought the stock market to be irrational for quite some time.
For myself, I consider it came back into a reasonable range in 2020 , then skyrocketed right out of it. If you want to put a timestamp on my “prediction”, it would be 2020. Being invested has handily beaten following that “prediction” for now, hence why I’m not willing to bet on it but just make sure my allocation can take it if it comes. The irrationality (and guillibility) of the markets trump my abilities by far.
Hm, the market seems not to price this probability strongly at the moment. Wouldn’t it be more prudent to only replace full exposure with more limited exposure? E.g. options or LETFs, or using other weightings than MCW (value, GDP, or just haircut their MCW size).
For simplicity and sanity of mind sakes, I try to invest based on principles rather than more news/market sensitive optics. One of my principles is that I try to avoid investing in countries where I consider there is a non-insignificant risk of spoilation and I consider the US to be one of them. It’s an on-off switch.
SKM is one of my high-conviction stocks, so I used this as a buy opportunity.
The dangers of the South-Korean market are real though. E.g. SKM’s valuation is strongly influenced by their share in Anthropic and it’s much easier for the SK chaebol to reshuffle that within their holding companies without the SKM shareholders taking a cut than it is if they were Delaware-incorporated.