Lessons Learned from the Reversal in Storage Market Trends

The recent rise and fall of this round of storage stocks has given me many new insights.

A while ago, the storage sector performed very strongly, with the stock prices of related companies continuing to rise. A very attractive narrative has also formed in the market: In the past, storage demand mainly came from consumer electronics such as mobile phones and computers; in the future, with the continuous construction of AI data centers, the demand structure of the storage industry may undergo long-term changes.

This logic is not without merit.

AI infrastructure will indeed bring new storage demand, and the operating conditions of some companies may improve as a result. The problem is that when industrial logic, rising stock prices, and market sentiment reinforce each other, people can easily go from "the industry has undergone positive changes" to further deducing that "the cycle has disappeared," "stock prices will continue to rise indefinitely," and "any price is fine to buy now."

Looking back, what I am most grateful for is not that I predicted the market reversal in advance, but that under the circumstances where my research was not sufficient, I did not invest too large a position.

At that time, watching the storage stocks continue to rise while Microsoft and Nvidia, which I held, performed relatively flatly, or even seeing the storage sector absorb a large amount of capital—every time storage surged, Nvidia and Microsoft continued to fall. Under these circumstances, emotions were indeed difficult to bear.

But ultimately, I only kept a small observation position, did not go heavy, and did not use leverage. My buying logic was: If it goes up, I won't completely miss out; if it falls, the funds might flow back to these tech veterans.

So, this reversal has also made me understand more profoundly: What is truly important in investing is often not being right every time, but ensuring that when you are wrong, the loss remains within an acceptable range.

I. The circle of competence determines not only what to buy, but also how much to buy

In the past, my understanding of the "circle of competence" was more about whether I understood a company's business.

Now I feel that the circle of competence should be more reflected in positions, that is, so-called "cognition determines position size."

For companies I have researched deeply, I can explain their business models, competitive advantages, sources of profit, and main risks. When stock prices fall, I also know what data to observe to judge whether this is market volatility or a change in investment logic.

For example, Microsoft, I have tracked for a relatively long time and written quite a bit of related content. Even if its recent stock price is like riding a roller coaster, I can still hold on, not because of blind optimism, but because I know what operating data I am waiting for to verify.

After this earnings report, the return on AI investment has been verified to a certain extent; as my second largest holding, in this current sluggish market, Microsoft has become the best-performing asset. This also verifies my previous point: Microsoft's stock price rise needs to prove through one earnings report after another that the money it spends can be earned back, just like Google!

But for industries that are not studied deeply enough, the situation is completely different.

When rising, all logic looks very reasonable; once the stock price falls, it is difficult to judge whether it is a normal adjustment or if the industry cycle has changed. At this time, confidence in holdings often relies solely on the stock price itself.

Therefore, assets that are not studied deeply are not absolutely uninvestable, but positions must be strictly limited.

A small position can help oneself observe the industry, understand the cycle, and accumulate experience; a heavy position means handing over the account's results to a variable that one has not yet fully understood.

Cognition should not only determine whether to buy, but also determine the position limit.

II. Good industrial logic does not mean that any price is worth a heavy position

The AI demand logic in the storage industry may still hold, but industrial trends, corporate profitability, and stock returns are not the same thing.

Even if AI brings long-term additional demand, we still need to consider:

Whether the industry still has cyclical characteristics;

Whether supply and capital expenditures will increase;

Whether product prices and profit margins can be maintained in the long term;

Whether the market has already priced in excessively high expectations;

Whether the current price still retains a margin of safety.

One of the easiest mistakes the market makes is turning a correct long-term direction into absolute confidence in short-term prices.

The industry can continue to grow, and companies can continue to make money, but if the valuation already includes overly optimistic assumptions, the stock price may still see significant pullbacks.

So, this experience did not lead me to conclude that "cyclical stocks cannot be bought" or that "hot sectors will definitely fall."

What I truly learned is:

No industrial narrative can bypass valuation, cycles, and position management.

III. The most dangerous thing is not loss, but relative return anxiety

There is a very strong psychological pressure in investing, which is not that one's own stocks are falling, but that others' stocks are continuously rising.

When others achieve high returns while one's core holdings perform flatly, people develop an illusion:

Am I missing the most important opportunity of my life?

This emotion can easily push investors to make a series of dangerous moves:

Selling assets that are temporarily not rising but are well-researched;

Chasing into hot sectors that have risen significantly;

Continuously increasing positions because feeling "left behind";

Starting to use leverage to quickly catch up on returns.

But looking back now, not buying a stock that rose a lot does not equal a loss.

Missing a rise actually costs zero; chasing highs and encountering a significant pullback is when real principal is lost.

An important ability in investing is not treating others' profits as one's own losses.

You can miss opportunities, but you cannot destroy the entire account structure out of fear of missing out.

IV. Leverage turns ordinary mistakes into permanent losses

Investors cannot always be right.

Industry judgments may be wrong, earnings reports may fall short of expectations, and the macro environment may also change. Under normal positions, many mistakes are just controllable losses; but once positions are too large, combined with leverage, the same judgment error can lead to completely different results.

When the market is smooth, leverage rapidly amplifies returns, and it is also easy for people to interpret 阶段性 results as an improvement in ability.

But once the market reverses, highly leveraged accounts lose the right to wait.

What is truly dangerous is not floating losses on the book, but being forced to sell at the worst time. Even if the fundamentals recover later and the stock price rises again, it has nothing to do with oneself anymore.

So, "do not lose money" does not mean that investment accounts cannot fluctuate, but rather to avoid two types of risks:

Permanent capital loss;

Risks that would force oneself to leave the market.

What long-term investing must first guarantee is not participating in every round of the market, but staying in the market oneself.

V. Conservatism is not rejecting opportunities, but controlling the cost of errors

In the past, I sometimes felt that caution and conservatism might cause me to miss many opportunities. But now I understand more and more that conservatism does not mean buying nothing, nor does it mean avoiding volatility forever.

Truly effective caution is acknowledging that one might be wrong even when bullish on an asset.

It is reflected in:

Participating in unfamiliar industries only with small positions;

Not continuously increasing positions due to short-term rises;

Not changing plans temporarily because others are making money;

Not using leverage to make up for so-called "missing out";

Leaving room for correction for every judgment error.

Investing is not about who earns the most in a certain stage, but about who can truly keep the profits and let capital compound continuously.

VI. Similarly dollar-cost averaging into indices, the underlying understanding can be completely different

On the surface, dollar-cost averaging into indices is a very simple thing.

But the same buying action can have completely different underlying logics.

Some people dollar-cost average because they heard from others that long-term dollar-cost averaging guarantees steady profits, so they start dollar-cost averaging; then, seeing individual stocks rise sharply, they complain that indices are too slow and start chasing hot sectors; after a drop, they stop investing.

Whereas I choose to continuously buy QQQM now because I have formed a relatively clear portfolio plan:

Retain core assets that I have researched deeply, and no longer continue to expand the concentration of single stocks; in the future, by continuously increasing index positions, let the portfolio structure gradually become more stable.

I do not require every dollar-cost average purchase to be at the lowest point, nor do I deny the entire strategy because of a drop after a single purchase.

I follow long-term probabilities, rather than pursuing perfection in every trade.

This round of storage 行情 has given me a more intuitive understanding of human nature in investing.

When rising, optimistic narratives will constantly reinforce; when falling, previously ignored risks will reappear. Greed, jealousy, FOMO, survivorship bias, and leverage impulses will repeatedly affect investors at different stages.

My greatest harvest is not proving that I am more accurate than others in judgment, but being more certain of several principles suitable for myself:

Do not go heavy on assets you do not understand;

Do not change plans because others are making money;

Do not use leverage to chase hot sectors;

Do not sell long-term core assets for short-term relative gains;

Every position must allow for the possibility of judgment errors;

You can miss out, but you cannot bear devastating losses.

Ultimately, investing is not about who earns the fastest in the short term, but about who can retain principal, retain judgment, and retain the qualification to continue participating in the market after experiencing multiple bull and bear markets.

Now I have a deeper understanding of Buffett's saying "do not lose money":

What truly needs to be avoided is not temporary fluctuations in the account, but those errors that could permanently interrupt compounding.