Getting real...where rubber meets the road

I must say I am now, as this point of making this entry, putting theory into practice. Putting my beliefs into real world experience. Here’s what I mean;

Going against the crowd

Going on my own and not being traditionally employed. I continued to focus on capital allocation management on my own (read stock investing). As of this writing, there’s a sell off of tech stocks. It’s wiping almost all gains made over the year but I have decided to dig my heels deeper. While market is running away, I am staying put. The following conversation I have with Grok best represent my thinking here:

Me: I find it ironic that investors should be concerned on capital spending on AI. I would argue that such investment will translate into stronger positioning in the longer term. The fact that management is investing for the future should bode well to shareholders. Are those that are dumping stocks due to high capital spending expect future competitiveness to come at no cost?

Grok: You’re spot on about the irony here—it’s a classic clash between short-term market reactions and long-term strategic necessities. Investors dumping shares over elevated AI capex announcements often seem to overlook that building competitive moats in transformative tech like AI doesn’t happen for free; it requires upfront capital to secure advantages in data centers, compute power, and innovation pipelines. Expecting future dominance without these investments is like hoping to win a marathon without training. Let’s break this down with some context from recent developments.

Big Tech’s aggressive spending on AI infrastructure is indeed sparking volatility, but history shows that such cycles often reward patient shareholders. For instance, Alphabet’s recent Q4 earnings highlighted plans to potentially double capex to $175-185 billion in 2026 for AI buildout, which initially tanked shares by up to 6% in after-hours trading before they recovered most losses. This reaction echoes broader investor jitters about ROI timelines, with some fearing that the massive outlays (e.g., hyperscalers projected to spend $527 billion collectively this year) might not yield immediate payoffs amid physical constraints like power grids and supply shortages. Yet, as you point out, this is precisely what positions companies like Google, Microsoft, and Amazon for dominance—cloud revenue is booming (Alphabet’s cloud up 35% YoY), and executives emphasize that demand for AI compute is outstripping supply, justifying the spend.

The sell-off appears driven more by “fear, not fundamentals,” as analysts from Bank of America and William Blair have noted, comparing it to past panics like 2025’s DeepSeek episode where similar AI disruption worries fizzled out. Short-term traders are fixated on near-term margin compression or the risk that AI could cannibalize existing software revenues, leading to a $1 trillion wipeout in software market caps recently. But contrarian voices on platforms like X highlight the absurdity: one trader noted that every hyperscaler is ramping capex because they’re “compute constrained,” and selling now ignores accelerating fundamentals. Another pointed out that markets punished companies for capex in sectors like semiconductors and new energy, yet long-term accumulation during these dips has paid off historically.

Your argument aligns with bullish takes from insiders and analysts who see this as an “AI renaissance” still in early innings—Microsoft’s recent earnings, for example, emphasized locked-in GPU contracts for the tech’s full useful life, countering ROI doubts and “destroying AI bears.” Even Amazon’s layoffs (30,000 over three months) are framed as reallocating from headcount to capex, converting salaries into servers to fuel AWS’s $50 billion government AI push. In essence, those exiting positions might be betting against the very investments that ensure competitiveness, while long-term holders could benefit from the network effects and scale that follow.

If Amazon’s earnings tonight (post-market) show similar capex hikes but strong AWS growth, we might see more of this short-sighted dumping—but as you say, it should ultimately bode well for shareholders willing to weather the noise.

An update on Amazon capek hikes. Amazon is forecasting to invest up to US$200 billion for 2026, 56% more compared to 2025 to build up its capabilities and capacity. I am a proponent and supportive of management that’s taking a long term view to their businesses that I entrust them to run. Had management taken a short term view, they will be responding to the market by managing their stock prices, after seeing sell down of their peers that reported earnings earlier.

Transformation is uncomfortable

I have experienced my own transformation in my own physical health. I shed from 72kg to 60kg within a year. To get there, I have to step out from my usual routine and stay steadfast. It was uncomfortable. I got ridiculed for being extreme but I stayed the course. Of course there’s a big difference between ‘investment’ for health and investment for wealth. ‘Investing’ in health, doing it right and staying the course will generate guaranteed outcome. It’s science. Investing in wealth, there would be risks. It’s not science, it’s economics and it’s an art. Science here is only so it makes sense of my views. Others may not see the same way. Only time will tell if I will be right, or wrong. This brings me to my third belief – taking risks.

Take risk and bet big

This is an old and proven belief. Risks are the ingredient needed for reward. I believe I am taking a big financial risk. It’s uncomfortable seeing so much invested into. This is one justification why I am holding on and not following the crowd to sell out for safety. The betting big portion is that there’s a large part of my wealth being put into holding on my portfolio. I am managing the internal tension of balancing this so that I don’t choke myself out.

It’s not easy

All this is not easy. I am doing nothing. It’s a matter of holding on. Sitting on my ass. I now truly get what Charlie Munger mentioned on this. Many people just can’t sit on their asses. It’s so difficult doing nothing to ride it out and reap rewards later.