AI and semiconductor names are down significantly

AI and semiconductor names are down significantly over the past couple of weeks.

However, what matters right now is for me to provide some useful context and "advice" on constructing your own investment philosophy.

There's no better time to learn about yourself than when times are rough.

Personally, my portfolio has taken a huge hit for a few reasons. Primarily because I pivoted around this time last year from a slightly more diversified base of stable technology compounders into a slightly higher concentration of higher beta and smaller market cap AI names.

However, if you're an inexperienced investor, what I can tell you is that market drawdowns are normal and expected (even though we can never time them exactly).

So if you plan to invest for decades, you should certainly expect to sit through many bear markets and many corrections.

The first thing to internalise is the arithmetic of losses where a 20% loss needs a 25% gain to get back to even. Similarly, a 50% loss needs a 100% gain to recover your losses.

This is why position sizing matters just as much as stock picking, and is a key reason why I'm against risky tools such as options or leverage for *most* investors.

Your primary goal when playing this game is to keep playing. A blown-up account via excessive leverage or backfired options trading is the worst case scenario, no matter how attractive or easy "gurus" online might make it seem.

That said, I do firmly believe in running a concentrated book of high conviction names that you can reliably track daily.

The specific number of positions varies person to person depending on a few factors like your individual ability to keep on top of latest events for each holding, including second and third order effects from other company's news.

However, every legendary investor's track record was built on a handful of high conviction positions. Sure, spreading capital across many names you barely understand can in theory reduce risk just because of the law of large numbers.

But in my opinion (and experience), it just guarantees mediocrity.

That said, concentration is a discipline of its own and is something I could write books on.

With the aim of keeping thing consise, concentration only works if you can name, very precisely, what you're concentrated in.

In simple terms: have you researched the company, sector and market to the point where you have utmost confidence in the trade?

But with concentration, you *need* diamond hands if all things are equal with the company and nothing has changed.

For example, $NVIDIA(NVDA.US) fell more than 50% in 2018 and ~65% in 2022. Anyone who capitulated in Oct 2022 sold one of the greatest companies of all time, probably because they lacked conviction in the trade.

And in turn, did not have any sort of investment philosophy.

So, you need to really sit down and talk to yourself right now, during this current AI drawdown, and ask yourself what your investment philosophy is.

You could probably run the exercise with Claude or ChatGPT and get some pretty enlightening outcomes for yourself.

But you must be honest for the good of your future self.

There's no better time to learn what kind of investor you are than during red days and weeks.