Advanced Micro Devices (AMD) is personal. It's just one of those stocks that if you knock it--even as it might deserve to be knocked -- it gets ugly fast. Maybe in the old days, before Twitter, you didn't know how ugly it was.
These days, though, it's pretty easy. You can see that if you even characterize a quarter as suboptimal -- especially when it is just that -- you get blasted as someone who is short the stock and loves Nvidia (NVDA) too much, Nvidia being a competitor against the company.
Sorry, the enemy of AMD is AMD. The fact that it can't crush the numbers, just lay them to waste, was pretty extraordinary. It's supposed to have the best personal computer chips, the best graphics chips and some of the best data center chips, but it just didn't make nearly the amount of money I thought it could -- or anyone thought it could, from what I can tell --except the homers, who didn't even think twice that it was a fabulous quarter.
Here's the problem. When I wrote that yesterday, I was immediately hit with all sorts of innuendo about how I was short AMD and just wanted to bring the stock down.
First, I can't short. Second, I don't care how well AMD does. I want it to win, although I recognize there is a bit of a zero sum versus Nvidia, which my trust owns.
Most important, though, I am seeing cases of "homerism" developing. That's when unseasoned investors get behind stocks and like them, even if they don't deserve to be liked.
Frankly, I am surprised it has taken that long for this kind of thinking to develop, given that we've been in a hyper bull market for almost a year now. The ritualistic defense of a stock in the face of disappointing earnings is a sign that we are getting to where you don't want to be, a situation where there's a vesting on the part of those who really don't do the homework and don't understand that companies can fail to execute.
Not only that, but we have low-dollar amount cheerleading, meaning that I think that there are some novice investors in AMD who like it because it's $12 a throw.
Why does this matter to me? Because it is a true sign of froth. I know many people like to look at the VIX for a signal about fear.
I like to look for "homerism" as a sign of froth, homerism meaning that you are rooting for a stock, not investing in it.
Now, the good news is that I haven't seen that much of it. Also, it isn't like AMD did a gigantic equity offering on top of the weaker-than-expected quarter. What I do know, though, is you have to have a healthy respect for shareholders, even when they are wrong. You have to understand that they truly do not know the company, if they feel the same way about it after a quarter like that.
I am not saying this is Nokia, where the customers seem to be on strike. I am saying that if you view these pieces of paper as momentum bets on a higher price rather than as investments in a company that has to execute on plan and meet demand -- and didn't do so in an effective way -- you don't defend it. You don't excuse it. You acknowledge that it wasn't good and you: 1) bet that it will be, and you buy more, 2) hold on, or 3) exit.
I have analyzed the behavior of homers over time and what they tend do to is a combination of two and three: they hold it and then they are blown out of it, because other companies, do better than their company.
So, keep this episode in mind. We have now been in bull market mode long enough that we are attracting people who know only that it is time to buy something because it is going higher -- AMD -- and if it doesn't, it's my fault, not the company's own.
It's a warning sign when healthy skepticism leaves the building. It's a bad sign when you start blaming others for calling out the truth.
Fortunately, this is the first time this earnings season I have seen homerism.
Unfortunately, it's not a sign of health. It's a sign of weakness. As long as it is contained to a couple of low-dollar stocks that have been red-hot, I think we will be fine. But if it expands?
Then your fellow shareholders become your enemy, and owning stocks is tough enough as it is.