EP703 | 🏈

Taiwan stocks break through 50,000; the focus shifts to avoiding a supply-chain reversal

After Taiwan’s stock index broke through 50,000, the episode noted that the index had pulled back to around 49,800. That does not necessarily mean the market is weakening; it looks more like a temporary pause after the breakout. The host believes that if the exceptionally strong performance from March through May is always used as the benchmark, every other period will naturally look disappointing. Once the comparison standard is adjusted, the market remains relatively easy to navigate.

Using TSMC2330.TW, Taiwan’s largest heavyweight, as a reference point, the host believes that estimated EPS over the next one to three years still provides support. Even if AI is in a bubble, orders are unlikely to suddenly collapse. As long as industries across the supply chain are still competing for capacity, 50,000 should not be viewed as the index’s endpoint. History also shows, however, that the more rapidly a supply-chain boom rises, the deeper the subsequent correction tends to be.

As the supply chain cools, the beneficiaries may change

What the host is truly concerned about is not the index hitting new highs again, but the supply chain shifting from tight supply and rising prices toward stability or even falling prices. Companies currently under pressure from higher memory, CPU, or other component prices may see profits recover through greater shipment volumes once cost pressures ease and supply returns. Conversely, the shortage-and-price-increase stocks currently attracting the most attention may lose market expectations once prices stop rising.

This creates two baskets of stocks moving in opposite directions: one consists of companies that benefit when supply is tight but may come under pressure once supply recovers; the other consists of companies currently hurt by shortages or rising costs but that may improve once the supply chain normalizes. The host is considering the latter as a stock-based hedge—not by reducing the overall stock allocation, but by ensuring that different holdings are affected differently throughout the supply-chain cycle.

The core of this arrangement is not predicting the turning date, but acknowledging in advance that the cycle may change. If certain companies are currently using a price-increase narrative to drive their stock prices higher, recovering supply could instead become bad news. If a company truly makes money by shipping large volumes, falling component prices and smoother supply could improve operations.

The host does not name specific stocks for now, but suggests that investors look for clues among companies that have publicly complained in the past about shortages, rising costs, or fewer customer orders.

When the broader market hits new highs, deal with the weakest holdings first

When the broader market reaches a new high, the host becomes more cautious if a stock in his portfolio has not only failed to reach a historical high but cannot even break above its monthly moving-average high. A catch-up rally can indeed lift lagging stocks temporarily, but these stocks usually struggle to approach the market’s highs. Once the market pulls back, stocks already near a breakdown or lagging over the long term often fall faster.

His approach is therefore to reduce weak positions first, rather than continuing to hold them because they delivered good returns in the past, have an appealing future narrative, or still fit the shortage theme. If an individual stock continues to make new lows, he exits completely; if it is merely lagging relatively, he reduces the position first so that he does not end up being forced to sell when liquidity is worst after the market turns down.

This approach also prevents mistaking “being bullish on a company” for “having to hold a full position right now.” The host acknowledges that he did not chase the strongest stocks in this rally, partly because he already had other allocations and did not want to force money into the market with leverage as he had in the past. For him, missing part of a rally can sometimes cost less than pushing risk to an unbearable level near the top.

Cash is not bearish; it preserves liquidity

The host does not favor using assets negatively correlated with the broader market as his main hedge. Instead, he would slightly increase his cash allocation or reduce the use of collateral and leverage. This does not mean exiting the market entirely. It means first pulling funds out of weakening positions and lowering overall exposure. If the market experiences only a normal correction, he will still have capital to add back in; if a genuine crash occurs, he is less likely to be forced to sell because of insufficient liquidity.

He particularly reminds listeners that buying during a rising market is easy—there are often buyers willing to take orders at the limit-up price—but during a sharp sell-off, there may be no buyer when you want to sell. Reducing weak holdings in advance is like adding an exit to the portfolio ahead of time. It also gives investors a chance to observe whether the correction is merely short-term volatility or whether the supply-chain cycle has genuinely entered a mid-cycle pause before deciding whether to put cash back to work.

The host does not advocate raising cash to an extremely high level, since he is still at a stage where he wants to build wealth. A more practical approach is to set a range for the stock allocation: when the market continues higher, do not rush to cut genuinely strong stocks; when market conditions deteriorate, deal first with holdings that have failed to keep up, gradually bringing exposure back within a tolerable range.