Greed still rules

The investment world was abuzz yesterday—and still is today—over Deepseek, a Chinese AI model that is reportedly significantly cheaper to train than anything we’ve seen so far.

Nvidia plunged 17% on the news, and many other stocks in the sector also took heavy hits. However, this had little impact on our portfolio. We benefited from trading updates where “things turned out better than expected” or where the numbers were simply good. When expectations are extremely low, the outcome can almost only be better.

I don’t have an opinion on whether Deepseek is truly a game-changer for AI. I don’t feel the need to study it in depth. In a rapidly evolving sector like this, I’ve always taken it as a given that disruption is inevitable at some point. Whether it happens through Deepseek or something else, only time will tell.

Having witnessed disruption firsthand in sectors like photography, telecom, and IT during my previous career, I look at companies and the stock market differently. I’m not searching for the companies that will drive the next major breakthrough or develop revolutionary technology.

I prefer companies whose core business changes very little—or only very slowly. Give me a Lotus Bakeries over a Nvidia when it comes to expensive stocks. The cookie maker has a simple product and can grow strongly through international expansion and product diversification. The risk of disruption there is minimal.

This preference is also reflected in our portfolio: I’d rather invest in a DIY retailer gaining market share, a construction company in a temporary cyclical dip, a cake maker, or a producer of personalized gifts. Of course, there’s competition, but rapid changes like those in AI are not to be expected in these sectors.

What yesterday once again made clear—just like on August 5 last year—is that the stock market in the short term is primarily driven by two forces: fear and greed.

One of Warren Buffett’s most quoted (and often misused) sayings is:
“Be fearful when others are greedy, and greedy when others are fearful.”

This quote was once again widely circulated yesterday, along with “buy the dip.” Fear drove Nvidia down by 17%, but I expect greed to regain the upper hand today.

Can we, after such volatility, already speak of real fear among investors? Absolutely not.

When a genuine correction or crash happens, it takes weeks or even months. It’s certainly not wise to start buying enthusiastically on day two. The market can still fall further.

For high-quality companies whose values you know well and that you’d like to own, you can always place opportunistic buy orders. During periods of volatility, stocks can sometimes take significant dips, and that creates opportunities.

What yesterday primarily demonstrated is that even stock market darlings and the markets themselves can still fall. Many seemed to have forgotten that.

The main conclusion I draw is that greed is still dominant at this moment. There’s hardly any real fear.

As long as greed prevails, I’ll continue to look for beaten-down stocks with temporary issues. Buying high-quality companies like Lotus Bakeries, given their current high valuations, is not yet on the table.

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P.S. I haven’t forgotten about the series on European stocks. A severe flu has held me back from working at full capacity. When I need to prioritize, I focus first on following up on our stocks and providing service to paying subscribers. But postponement isn’t cancellation—I’ll likely start in late February. It’s a lot of work, after all, and next week, I’ll be attending ValueX for the sixth time. This is an invite-only event for value investors from around the world, organized by Guy Spier.

P.S. 2: If you are interested in Deepseek and its impact on tech companies, read the article by my friend Kris—it’ll bring you up to speed right away.