Hot money. It is everywhere and, at this moment, it is the bane of the long-term investor's existence.
I keep thinking about all of the hot money stocks I talk about and it drives me crazy that there could be so many weak handed owners there are right now-- weak because they were only strong when the stocks were flying. .
Case in point: Micron (MU) . Here's a semiconductor company that truly delivered a masterful upside surprise, earlier this month largely because of a shortage of DRAMs, the memory building blocks it makes that have become so packed with silicon that they are much more difficult to produce than the old DRAMs. That makes the capital equipment investment huge and the barriers to new greenfield plants enormous.
It also has a large line of flash memory that was, at one time, the hottest of the hot, but now pricing has cooled as supply and demand have come into balance.
The recent quarter came in much better than expected with this quarter ringing in at $2.82 versus $2.74, and then a sizable guide up for next quarter as much as 20 cents. But it was led mostly by the rising price of DRAMs, as flash pricing stalled out.
So what's the trajectory of Micron's stock before and after this el monstro quarter? Well, let's see, first the hot money bid the stock up from $47 to $61 in the 19 days leading up to the quarter. It was a breathless run, cheered on by bulled-up analysts who kept raising price targets, the most aggressive being the $100 targets that got slapped on right before Micron reported.
Why do I call it hot money? Because who in heck pays $61 DEAD AHEAD of a quarter AFTER the stock already had a massive move up like that. That's the definition of hot money. Why pile on like that? Why can't you say "I missed it" or, "I will wait until after the quarter is reported because nine times out of 10 with this stock it's been a sucker's game."
Nope, they couldn't wait. Hot money was seduced by the thoughtless blast off. It was dedicated to falling off a cliff.
And that's exactly what has happened when the quarter was reported. The stock looked piqued so to speak the day of the quarter, sinking from $61 to $58. But then a few minutes after the obligatory spurt up on the cheery headlines, the stock just continued on its way down falling ultimately to $54. Then we got another rearguard some analyst bump to a $100 price target and the stock momentarily stabilized and managed a point increase.
Since then the pressure from hot money, no doubt realizing the stock wouldn't see $61 again any times soon, has cratered the stock to $51. Can you imagine what would have happened had Micron missed?
So, what's the hot money guy who bought this stock at $61 with visions of $100 dancing in his head do now? Cut and run at any price most likely. Panic out ahead of when the head-and-shoulders pattern is clearly on the horizon, something that will occur when the stock drops another three points? That's the worst thing that could happen to a hot money artist because hot money tends not to know the difference between a DRAM and a Dodge Ram or Flash memory and Grand Master Flash.
To make matters worse, hot money is clueless to the idea that anyone can see the panic or even smell it. Yet, as the stock tumbles down the hot money short-sellers, scenting the blood, go on the attack.
Where does this madness stop? I will tell you this, some of the analysts who loved it in the high 50s are subtly letting it be known that now the stock may have peaked and while the company can earn about $11 this calendar year, making the stock the cheapest in the S&P 500 right now, next year will most likely be a down year because of DRAM strength that can't make up for flash weakness.
As we have learned, it doesn't matter from what height a company may report a down year, as soon as appears inevitable a stock becomes uninvestible.
Right now, though, the rental shareholders in Micron are your enemy. Consider them as unruly tenets who scuff up the walls and take down the fixtures on the way out.
And after this brutal, gloriously-shortened week, do you really want to deal with them anymore? I think that hot money discourages investors more than just about anything on the planet and right now hot money is everywhere. Sometimes you just have to wait until it cools to, at last, reach terra.