EP683 | 🚑

Drawdown Recovery and Defensive Portfolio Shifts

With the brutal correction in global tech stocks in July, the host revealed that his portfolio's net worth has retraced to its levels from early May, with his maximum drawdown (MDD) estimated at 25% to 28%. While this shrinkage is painful, his defense looks solid compared to some peers who pocketed six- to eight-fold returns earlier this year only to watch their net worth collapse by over 50%. This relative resilience is primarily due to his proactive move before the crash, transferring a major portion of his core holdings into what he jokingly calls "holy temple stocks"—TSMC2330.TW and index futures. In an extreme environment where mid-caps and high-multiple tech names experienced devastating sell-offs or straight-down lockups, TSMC's decline was indeed the mildest, successfully serving as a safe-haven fortress for bulls.

Despite his defensive positioning, the host confessed that facing a market with "daily new lows" still triggers anxiety and fear, as no one can predict the absolute bottom when caught in the eye of the storm. The current technical landscape has severely deteriorated, with the vast majority of individual stocks falling below their 60-day moving averages (quarterly lines). The stop-loss filter he suggested two weeks ago—to simply ignore any stock trading below its quarterly line—has become obsolete when almost all stocks have broken these support levels. To navigate this tricky state of "unbelievably cheap but too scared to buy," the host is gradually shifting capital out of his stable anchors like Apple$AAPL and TSMC into ultra-cheap mid-caps. However, with the market appearing to be a bottomless pit, he has adopted a highly cautious posture. If a "humanitarian corridor" (a market rebound) opens up, he plans to become even more conservative, parking more capital back into index futures or holding cash, while strictly capping any single-stock weight at 10% to survive.

Historic Tech Massacre and Liquidity Dynamics

Reflecting on this massive plunge in global semiconductor and AI-related stocks, the host classified it as the "2024 Tech and Mid-Cap Massacre," a historic event worthy of the textbooks. Comparing this to the tariff-war panic in March and April of last year, that period felt far more terrifying in real-time. Coming off a long holiday, market liquidity evaporated instantly, forcing stocks to limit-down with zero warning and prompting the host to scramble for lines of credit from banks to avoid forced liquidation. Although the absolute drop this year is staggering—with the OTC index losing nearly 30% in just one month, compressing an entire year's worth of 2022's decline into a few weeks—the absence of a widespread margin call liquidation cascade suggests a key structural difference: most long-term investors who entered last year or early this year are still holding substantial unrealized profits.

This profit cushion explains why the downward spiral has continuously failed to trigger capitulation volume. Most market participants are experiencing the pain of "profit clawbacks" rather than immediate margin liquidation pressure, leading them to stubbornly hold their shares. Consequently, the market has dragged lower in a slow-motion sell-off with thin volumes and minimal handovers. Historical base rates indicate that after such severe technical damage, the probability of a sharp "V-shaped recovery" is extremely low. Even when limit-down stocks briefly reopen, the market likely requires weeks or months of sideways consolidation and rebuilding of trust. In this environment, utilizing high leverage is a dangerous move. The host admitted that any leverage ratio above 1.8x to 2x inflicts immense psychological stress, prompting him to keep his leverage below 1.3x—a crucial risk-management rule that has allowed him to survive multiple bear markets.

Memory Crash Explaining AI Multiple Re-Ratings

The epicenter of the global semiconductor correction was localized in the South Korean market before rapidly spilling over into AI supply chains in Taiwan and the US. Paradoxically, while industry consensus, physical data, and forward forecasts all point to memory as the most supply-constrained and highly visible component in the AI ecosystem, giants like Samsung ElectronicsKOSPI:005930 and SK HynixKOSPI:000660 still faced a brutal, indiscriminate sell-off despite their forward P/E and PBR ratios being reasonably priced prior to the crash. Beyond the technical unwinding of high leverage among South Korean retail accounts, this crash signals a profound re-rating of the entire AI valuation framework.