The stock market is efficient and quotes a price that is accurately reflected in financial data, however, I believe that is not always the case. The Efficient Market Hypothesis (EMH), a financial theory, suggests that stock prices fully reflect all available information at any given time. This means it is impossible to consistently achieve higher returns than the market average through stock selection or market timing. If this theory is correct and applied to every situation, no one can maintain a higher return than an average investor, which is about 10% (12% dividend reinvested) in a long period. This also suggests that my theory, Time Principles, based on market timing won't work. The only way to prove that the Efficient Market Hypothesis does not apply to every stock, I would have to perform and demonstrate a higher return as I go.
My stock selections are based on my theory, Time Principles. I buy or sell stocks when the Time Principles indicates buying or selling points. I always follow the theory because it works well so far. This method of decision-making is very objective, and systematic, and, in a way, it is boring, however, it allows me to eliminate any unnecessary emotions and avoid impulse decision-making. I learned this the hard way maintaining discipline is an essential part of trading. The consequence of not following rules can be devastating in performance even in one transaction.
However, sometimes, there is an opportunity that makes me drool to buy a certain stock due to the obvious market errors (mispriced) such as significantly undervalued stock though I cannot confirm the market movement is following my theory. On occasion, I do not have enough info to decide, however, I feel (my gut tells me) that time is ticking, here is an incredibly cheap price being quoted for a great value stock and offered in a short period in the small window and never at the price ever. If I find a stock like that I would like to buy it with a small principle first and analyze it as I go, and add more if convinced because passing an opportunity is the same as lose money.
I started purchasing Super Micro Computer, Inc.(SMCI) stocks since 11/19 between $23-28 after the stock hit its lowest price. $17.25 on 11/18/2024. SMCI stock caught my attention for a few reasons. First, AI boom, all the AI (Artificial Intelligence) stocks like NVIDIA, AMD, PLTR, META, and GOOGLE are on the rise to making records everyday all-time highs, and SMCI was one of them until very recently. The fundamental data is a phenomenon and the growth rate is exceptional as well as the other AI stocks, and having a strong connection with NVIDIA for over 30 years was convincing, however, the price showed a contradictory movement after June or July. This made me want to look into the current status of the company deeper. The only concern I found, associated with the market plummet was that "Super Micro's auditor at the time, Ernst & Young (EY), raised concerns about the company's governance, transparency and internal control over financial reporting, prompting its board to form a special committee." Additionally, SMCI didn't report the 2023 Annual report and Q3 Quarterly report on time. However, this was just the delays of the reports resulting directly from the actions of Ernst & Young (EY) leaving SMCI. The highest price recorded in March was $122.50 and dropped by 85% down to $17.25 in 7 months without having any solid evidence of wrongdoing or fraud. Another reason was the pattern and mathematical sequence between Jan - Nov, which was a technical indication. My conviction of the chart following my theory was not thick yet, however, it was a great possibility. That's the reason I jumped on it. I will verify that as I go and I will get out as soon as I realize that I am wrong.
As of today, 12/2, the market price reacted rapidly and quoted $42, which is over 80% gain from the initial purchase price. Super Micro says "Independent review finds no evidence of misconduct as company searches for new CFO" on 12/2/2024.
<Price Change Last Two Weeks>
